A RECENT short break on the European mainland offered respite from the grinding pressure of UK inflation.
Several days in Spain was all it took for the message to hit home that the rampant price increases which UK households have had to endure over the last year and more is not being uniformly felt on the continent.
That is not to say prices are not on the rise on the Iberian Peninsula: speak to those who live locally and they will quickly tell you the cost of living is on the up. But the experience of Spain really bears no resemblance to what UK consumers are having to deal with. It is significantly cheaper for groceries and to eat in bars and restaurants in Spain.
Sadly, the break in the sun was all-too-brief. Within hours of touching down in Edinburgh, all it took was a trip to a couple of local shops for reality to bite.
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Was that really a £3.50 price label attached to a 400g tub of Sun-Pat peanut butter? Was it truly £4 they were charging for a large box of Kellogg’s Rice Krispies? Unfortunately, prices such as these are now the grim reality when it comes to shopping for groceries in the UK, and there is no immediate prospect of the pressure easing.
The most recent official figures surprised observers last month when they showed annual UK consumer prices index inflation had increased to 10.4 per cent in February, up from 10.1% in January.
Food and non-alcoholic beverage prices rose by 18.2% in the year to February, up from 16.8% in January and the highest rate observed for more than 45 years.
The Office for National Statistics said the largest upward effect came from vegetables, citing media reports of shortages of salad produce and other vegetables because of bad weather in Southern Europe and Africa, as well as the impact of higher electricity prices on produce grown out of season in greenhouses in the UK and northern Europe.
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The persisting narrative from the UK Government is that global factors are to blame for the current run of inflation. And there can be no denying that the surge in energy prices that followed Russia’s invasion of Ukraine, not to mention the disruption to food imports from Ukraine, has had a major bearing on the cost-of-living crisis. But whether UK ministers are brave enough to admit or not, Brexit is also having an inflationary effect on the price we now have to pay for essentials.
Prime Minister Rishi Sunak may have pledged in January to halve inflation by the end of the year – itself a bizarre commitment given it is not something he can control – but that will still be way higher than the long-term inflation target of 2% set by the Bank of England. The misery, in short, will be felt by many more months to come.
However, can we lay all the problems of higher prices at the door of geopolitical factors? Or should we expect the major grocers to absorb more of the pressure and ease the burden at the till?
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Reports in the business press in recent days have quoted analysts as saying they expected Tesco, the UK’s biggest grocer, to report annual profits in the region of £2.6 billion when it unveiled its results today. The consensus among analysts seemed to be that, while sales have been strong over the past year, profits will have fallen from £2.8bn the year before because of the impact of higher energy and labour costs.
That profits may have fallen marginally at Tesco may concern its bosses shareholders, but it will be of little consequence of consumers struggling to pay for their groceries on a week-to-week basis.
Moreover, the prospect of Tesco returning hundreds of millions of pounds to shareholders via buy backs, as has also been reported, could well go down very badly with consumers, campaigners and some politicians given we remain mired in a cost-of-living crisis.
Much like the big oil and gas companies and major high street banks, which have respectively benefited from elevated energy prices and surging interest rates, it appears that major grocers are benefiting from the course of geopolitical events.
Sure, the price grocers are having to pay suppliers for the goods they sell in their stores will have gone up because of global inflationary factors. But judging by the exorbitant prices of some goods we are seeing in stores it is hard to avoid the impression that they are managing to maintain their profit margins just fine.
Ultimately, it is not these businesses or their shareholders who are bearing the brunt of rampant price rises, it is ordinary consumers, many of whom will not be seeing their wages keep pace with inflation or anything near it.
To be fair to Tesco and indeed Sainsbury’s, there is evidence that they are reducing prices on some products. And there have been suggestions in recent days that Tesco wants to go further.
According to one report, Tesco is now pushing for price reductions from suppliers in order to lower prices in store, complementing the reductions available on some goods for members of its Clubcard scheme. Perhaps further details on its strategy will have been announced when its results were unveiled this morning.
Sainsbury’s meanwhile revealed its intentions on Tuesday, when it unveiled lower prices for hundreds of products for members of its Nectar loyalty card, echoing the approach taken by Tesco through its Clubcard.
These moves will be welcomed readily by consumers who have struggled for so long with high prices and hugely elevated energy bills.
But whether they go far enough is another matter entirely.
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