UK inflation commentary - October 2017

Simon-Kucher & Partners

9th October 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:

 

The inflation rate (CPI) of 3.0% seen for September was the highest in the UK since April 2012. When the next set of inflation figures come out on Tuesday (14th November) we are expecting to see that inflation crept even higher in October.

 

 

Petrol Prices

In October, we have seen prices at the pump reduce slightly, for the first time since July. Based on a 60 litre car, motorists are paying around £1 less to fill up their tank compared to this time last month. However, the price of crude oil rose by 9% over the month to over $60 a barrel. Given that the pound is also weaker against the dollar, we have the double whammy of oil price increase and weakened pound driving petrol prices.

 

Food Prices

As the festive season arrives, the cost of households’ weekly shops becomes more and more important. This month, food price inflation rose above 3% for the first time in 5 years due primarily to the increasing cost of importing food caused by a weakened exchange rate. The intensive competitive pressure in the retail sector has helped keep a lid on this, but the pain of increasing costs is being shared by suppliers, retailers and consumers.

 

Looking ahead

Over the next few months we should see the headline inflation figure coming down as the one-off impact of the Pound depreciation, following the Brexit vote, and the increases in energy prices drop out of the year-on-year comparison used to calculate the inflation rate.

However, households shouldn’t expect things to return back to times of near zero inflation seen in 2015. According to the Bank of England annual inflation typically is affected for around 4 years after import price changes and domestic pressures are likely to influence inflation more as wages start to pick up.

                                                                                                                              

Black Friday

Bargain hunters will be looking forward to the discount bonanza of Black Friday and Cyber Monday later this month. Those looking for a good deal won’t have much longer to wait as we expect to see sales periods coming forward rather than waiting until Black Friday itself

Even with a big dip in prices, there won’t be much noticeable impact on inflation as inflation in the UK (CPI) is generally measured during a period in the middle of the month.

Struggling retailers will be hoping for a big sales boost, but the real risk is that the sector as a whole just brings forward sales that would have been seen later in the year, leaving many retailers in the red rather than the black.

 

The Office of National Statistics will release its Consumer Price Inflation stats for the month of October on Tuesday, 14th November. Please find below some brief analysis and comments ahead of this from pricing experts Simon-Kucher & Partners.