So, what exactly does that mean? Essentially this: Paying more for less
Inflation may be coming down on paper but there remains a major divergence between what consumers are paying and what they are getting in food stores. And ultimately, that trickles down to every spending decision that households will make. If you’re having to pay more for essentials, that leaves less room for non-essential spending. Here’s the chart highlighting that divergence:
Unfortunately, this is a reality faced not just in the UK but in most places around the world. Typically, when prices go up, they don’t come back down even if the costs for the product normalises over time.
In Australia, there is growing backlash on the big jump in grocery expenditure over the last few years although that also owes to a duopoly between Coles and Woolworths. But just take a simple case of purchasing McDonald’s for example. In my country, a Big Mac meal used to cost $3.13 in 2021 but that has now increased to $4.41. That’s a ~41% price jump. And if you look all the way back to 2012, that used to cost just $1.93 (indicating a ~128% price increase).
I’m sure almost everyone can relate on this matter. And I can imagine that being the case in most countries all over the world right now. The real issue here is that no matter what picture central banks and governments are trying to sell, the wage increase of an average worker is most likely not going to cover the increase in prices for something as essential as food.
And the chart above is pretty much highlighting that. While the value of retail sales continue to increase, the trend actually shows that the volume of sales is decreasing when compared to the base level set out in 2019.
So, even with the retail sales beat we’re seeing last month, there are still concerning signs on UK retail spending heading towards the end of the year as highlighted by the CBI report yesterday here.
This article was written by Justin Low at www.forexlive.com.
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