The ONS have today released new inflation figures which show some good and bad news for wine and spirit consumers and businesses. The wine and spirit industry is a big player in the FMCG sector and as such inflation figures matter greatly. What is more, every year the Budget – now in November – means the industry faces the very real possibility of price changes that are outside of the control of the market in which we operate. Let’s keep this brief, inflation is hardly the West Wing and we’ve only just had a Budget.
CPI inflation was down 0.1% in November to a flat 3% in December 2017, which is good news for consumers. CPI for beer declined 0.6% to 3.8% in that time, spirits declined a massive 2.2% to 1.5% but wine increased 0.3% to 3%. The decline in the overall CPI rate, albeit about as small as it can get, could be the first signs that the effects of the devaluation of the sterling in 2016 are slowly stabilising, but this is little solace to wine and spirit importers whose prices continue to rise, contrary to most other goods.
Conversely, RPI has increased 0.2% to 4.1% in December 2017, the highest rate for the entire year. There are two things to note here: firstly, alcohol duty increases during the Budget are linked to a projected rate of RPI inflation, not CPI, by the OBR who base their projections on previous data. Should RPI continue to increase in to 2018, it will not be welcome news to the industry in November. Secondly, that RPI has increased when CPI has decreased only supports the notion that RPI is an outdated metric, now rarely used in policymaking and something we campaigned on during November’s Budget. How the ONS treats RPI data, which isn’t as detailed as other measures of inflation, is also an indication and they have openly stated they recommend people do not use it. For example, wine and spirits are measured together and register a 0.5% decline to 2.7%. This might represent something of median between CPI’s decline in spirit prices and increase in wine’s, but it is impossible to know for sure.
Having been the case throughout 2017, the UK continues to outpace the EU as a single bloc, who are at 2% (measured by the EU’s Harmonised Index, which measures UK inflation at a slightly higher 3.2%), with Germany at 1.6% and France at 1.2%.
A decline in inflation will likely only happen slowly and it will be important to keep an eye on ONS releases, either through this blog or directly with the ONS, whose excellent dashboard gives a brief overview of the UK’s economy.