UK Inflation Bulletin: Higher inflation hit home in 2017

Simon-Kucher & Partners Inflation Bulletin

Higher inflation hit home in 2017 costing UK households an extra £24bn, more than £900 per household, compared to had 2016’s low inflation continued.

The increase in inflation seen from 2016 to 2017 cost UK households an extra £24bn last year, more than £900 per household. This is the biggest inflationary hit consumers have faced for several years, the major contributors to this were Transport, Housing costs and Food.

Households will be feeling the pain as wages have not kept up with these price increases. Average weekly total real earnings declined by 0.2% between to October 2016 and 2017.

Dr. Peter Colman, Partner at Simon-Kucher & Partners (the world’s leading pricing strategy consultancy), commented:

“This is by far the biggest inflationary hit consumers have faced for several years. Commuters in particular have felt the impact, whether they drive or use public transport.

And even when commuters get home the cost increases continue. Rising costs for household essentials such as Food and Energy will have certainly been felt this January.”

The largest contribution to this £900 came from

Transport where the average household spent an additional £255 compared to if we had continued to benefit from 2016’s low inflation. Those commuting by train saw average fares increase by 2.3% last year, and will see average increases of 3.4 this year. However Drivers weren’t spared from the costs with Petrol prices rising to the highest level for three years.

The second biggest factor was Housing costs, including essentials such as Energy bills, Water bills and Rents. Combined these cost the average UK household an extra £180 in 2017.

Dr. Peter Colman, commented:

“We expect the cost of keeping warm to be a “hot topic” over the next few months. However the continued roll out of smart meters and potential price cap legislation could help some consumers to better manage their household budgets.”

The third major contributor was Food with the average UK household spending an extra £160 due to higher inflation. This is in sharp contrast to previous years which for the main part saw falling Food prices. Multiple factors were at play here including higher import costs due to exchange rate movements and the price of oil. The intensive competitive pressures in the domestic market have helped to keep a lid on this, with the impact of increasing costs being shared by suppliers, retailers and consumers.

It’s going to get worse for before it gets better

Dr. Peter Colman, commented:

“Looking ahead, businesses are facing a raft of cost increases in 2018. There are pressures everywhere from business rates, to living wage costs, to pensions and raw materials. If companies are going to protect their margins, it’s inevitable that they will need to pass on these cost increases to consumers either in the form of higher prices or via shrinkflation (the reduction of product sizes) - a trend we expect to continue.”