UK inflation commentary - August 2017

James Brown, Partner and head of the UK Consumer & Retail practice at Simon-Kucher & Partners (the world’s leading pricing strategy consultancy), comments ahead of Tuesday’s Consumer Price Inflation figures for August:

 

Reaching the top?

Despite the lower-than-anticipated CPI rate of 2.6% in both June and July, both consumers and institutions are expecting a rise in the coming months. Consumer concerns over high inflation are at a three-and-a-half year high, according to a recent poll from Lloyds Bank. At the same time, the Bank of England has already announced it expects inflation to peak at 3% in October, which is well above their 2% target.

 

Back to work

With the summer holidays now over, it is back to work for most of us. For road users, petrol prices are up after the respite given by lower prices over the summer. Driving to work cost 5% more in August and early September than last year.

 

For rail passengers prices are not set to increase immediately, but from January the cost of commuting to work will increase by up to 3.6%, in line with July’s RPI figure. This will be a significant additional cost for long distance commuters, with an increasing number of season tickets such as Oxford to London set to be priced above £5,000.

 

To go through their daily grind, coffee drinkers should expect to pay more for a cup of their favourite drink as the price of coffee increased by 6.7% in the last 6 months compared with last year, according to ONS figures.

 

Power switch

As the colder months arrive, electricity bills will represent a larger share of households’ monthly budgets, perhaps larger than expected. The price of electricity was up by more than 9% year-on-year this July, with all of the “big 6” energy companies and other smaller brands having introduced price rises. One top player recently increased its tariffs by 12.5% on its standard variable tariffs. On an average electricity bill, just a 10% rate hike, is worth an extra £59. And with prices high, shopping around for deals is becoming much more common as energy suppliers offer cheaper fixed tariffs to new customers.

 

Whilst stocks last

Another topic of focus for households planning the year ahead is the cost of their weekly shops. Food inflation was only 1.3% in August, much lower than the expected overall inflation for the month, but we expect it to rise in the months ahead, the British Retail Consortium (BRC) said. The downward pressure on food prices came from fresh food, thanks in part to supermarkets sourcing their fruits and vegetables from UK suppliers. But as the winter months come nearer, higher import costs will continue feeding through to prices on the shelves.

 

The Office of National Statistics will release its Consumer Price Inflation stats for the month of August on Tuesday, 12th September. Please find below some brief analysis and comments ahead of this from pricing experts Simon-Kucher & Partners.