UK inflation commentary - April 2017

Mark Billige, Managing Partner at the London office of pricing experts Simon-Kucher & Partners (the world’s leading pricing strategy consultancy), comments on today’s Consumer Price Inflation figures for April:


Inflation is back on target

The CPI rate in April climbed to 2.7%, which is a 0.4%pt gain from last month. It is also the third consecutive month that the CPI has remained above the Bank of England’s 2% target. Such a level has not been recorded for more than 3.5 years. This increase in inflation is leading to higher costs for British households and in the first quarter of the year it has cost households around £195 (vs the Q1 2016 inflation level).


Despite consecutive months of above target inflation, there are pockets of good news for consumers as we move into May.


Passenger flight

Although the cost of flying was a main contributor to April’s inflation rate, households who like to go abroad for their holidays shouldn’t worry too much. The increase was primarily due to Easter being in April this year compared to March last year. In fact comparing the two Easter periods, April 2017 against March 2016, air fares actually fell by more than 8%.


The overall cost of holidaying (e.g. hotel nights and restaurant meals) in Europe and the US has risen by 10% and 14% respectively, as a result of the fall of the pound versus both the euro and the dollar since the EU referendum. A survey conducted by Simon-Kucher & Partners showed that in the face of Brexit price increases, 58% of respondents would adjust their holiday spending habits. The British Tourist Authority confirmed this change, most notably with this year’s shift towards Easter “staycations” where holidaymakers swap a trip abroad for a short break in the UK. As a result, some airlines with exposure to the UK market have been resorting to unseasonal Easter discounts.



May campaigns

The same survey by Simon-Kucher & Partners showed that 65% of respondents are concerned about prices increasing as a result of Britain leaving the EU. In the last few months, these concerns have been justified, as we have seen food and drink prices increase in the face of rising import costs.


However, the outlook for May seems more promising. The start of May saw two of the four major supermarkets launch price cut campaigns. Tesco pledged to slash prices on a vast array of fresh produce to encourage healthy eating, whilst Morrisons decreased prices on over 1,000 everyday grocery products, as part of its Price Crunch campaign. This is reassuring news for customers dusting off their barbecues in time for summer.

The launch of both of the above campaigns show supermarket prices are not entirely held to ransom by the currency effects of Brexit, and supermarkets still have a degree of pricing autonomy.


Fuelling a price war

It is still notably more expensive for motorists to fill up their tank compared to this time last year. For example, black cab drivers in London are paying around £6.50 more per week to fuel their vehicle compared to late April 2016, which is an increase of over 11%.


However, the first week of May saw all four of the UK's biggest supermarkets cut petrol and diesel prices, most notably Morrisons and Sainsbury's who cut pump prices twice in one week. A rise in the value of the pound and a further decline in the market price of oil has resulted in wholesale savings for supermarkets, which are now being passed on to customers. Asda cut prices, but has now also set a national price cap on unleaded and diesel. With all four major supermarkets reactively lowering prices, there is evidence to suggest a fuel price war has been triggered. Falling fuel prices would bring some sunshine to the holidaymakers hitting the UK roads this summer.


The Office of National Statistics has released its Consumer Price Inflation stats for the month