UK inflation commentary - July 2017

Dimitris Hiotis, Partner in the London office of Simon-Kucher & Partners (the world’s leading pricing strategy consultancy), comments on today’s Consumer Price Inflation figures for July:

 

Almost at the last hurdle?

The CPI rate for the month of July remained stable at 2.6%, unchanged from its June reading. Whilst the Bank of England warned earlier this month it expected inflation to eventually peak at 3% in October, there has been a large downward effect from oil prices falling for the fourth consecutive month in July.

 

Back to school (and off to university)

As parents of school children are planning the year ahead, many will have to budget carefully in a context of rising prices. Thankfully for parents, discounters are leading a price war with basic school kits offered at £3.75, more than £20 cheaper than the £25 M&S school uniform kit. For the standard British family of four this amounts to a total saving of £250. As for stationery, Poundworld has come to the rescue, launching a very attractive range costing 75p, almost 1/10th of the average price of a notebook at high-brow Paperchase. As for parents who are sending their children to private school, they are likely to see their fees going up by 4%-10%.

 

For those getting ready to go to university, they are likely to face a higher cost for housing compared to last year. In a report by the National Union of Students, accommodation costs for students were revealed to have risen by 18% between 2013 and 2016. This means that students today are paying about £250 to £350 more per year than their elders did 4 years ago. That’s an annual rate of increase of 4.4% over the last 4 years, which is way above the CPI rate for that same period.

 

Food for thought

Whilst discounters slashed prices of school uniforms, it is unlikely that they will start a price war on food & drinks as they did in 2015 and 2016. Despite a small respite this summer, as the rate at which prices increase slowed down, food inflation is still the highest it’s been since November 2013. The weak pound is continuing to affect our food prices through higher import costs, some of which eventually is passed on to consumers.

 

Shift to CPIH

Since the month of April the ONS has been using CPIH, which is an adjusted CPI figure, as its headline inflation figure rather than CPI. Interestingly this shift happened at the same time as CPI overtook CPIH for the first time since July 2014. However there is a good rationale for using the new measure as the cost of owning, maintaining and living in a home, for example mortgage payments, represents a significant cost for many.

 

The Office of National Statistics has released its Consumer Price Inflation stats for the month of July on Tuesday, 15th August.