The Office for National Statistics (ONS) has reported that UK inflation rose 2.9% last month in May up from 2.7% in April. The Bank of England target for inflation is 2%, so obviously the inflation number is going in the wrong direction and pundits expect inflation to grow in the months to come.
What’s driving the trend? The weakness of sterling on international markets since last year’s June BREXIT vote is the key driving force with the increase in import costs being crucial. Interestingly, video games are cited as a key import here driving up inflation. Overseas holidays too have become more expensive: that’s a big single annual line item for many families. In terms of basic imports, the increasing costs of sugar, jam, confectionery and children’s clothing have pushed up inflation in the food and apparel sectors.
The upward trend of imports and pricing is mirrored by a stagnation in wages and household incomes that’s hardly new. The up in prices was 2.9% but the increase in pay was only 2.1% in the first quarter (that excludes bonuses). So spending power is down. In particular, pubic sector workers haven’t seen much of a filip in wages since 2010. With inflation up and wages stagnant, this could be a troubling cocktail as 2017 progresses for marketplace sellers.
If you’re buying your products in from abroad, you’ll doubtless have already noticed the squeeze. Importing is more expensive. But combined with flat incomes it means you’ll be legitimately tempted to raise prices whilst shoppers are looking for bargains.
Since the advent of ecommerce in the UK, these feel like the most troubled times. As ecommerce put down roots from about 1998 through to 2006, the British economy was really rather rosy and access to consumer credit was easy and the supply plentiful. After 2007, times were tough but ongoing low interest rates, low unemployment and steady sterling meant that not much changed really. But it looks like 2017 my be the year where that changes and belts really do start to be tightened.
Prime Minister Theresa May has said that her minority Tory government has learnt a lesson and will see the end of so-called austerity. And the details of the DUP deal to keep the Conservatives in power are yet to be fully revealed. So it is possible that the inflation challenge may wane in the face of income increases. But that’s all speculation. As it stands these are uncertain times.
What does it look like where you are and the sectors in which you trade in? Are you having problems with import prices and buyer spending power? Would inflation over 3% cause you greater headaches?