- ‘We can’t afford anything’: Turkey’s cost-of-living crisis threatens Erdogan’s re-election Reuters
- Turkey’s cost-of-living crisis threatens Erdogan’s re-election The Jerusalem Post
- ‘We can’t afford anything’: Turkey’s cost-of-living crisis threatens Erdogan’s re-election By Reuters Investing.com
- ‘We can’t afford anything’: Turkey’s cost-of-living crisis threatens Erdogan’s re-election Times of India
- ‘Nothing but hunger’: Cost-of-living crisis threatens Erdogan’s re-election in Turkey ThePrint
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UK inflation moves back up to 40-year high as Brits battle cost-of-living crisis
The Office for National Statistics announced inflation figures Wednesday as the U.K. undergoes a historic cost-of-living crisis and political turmoil.
Westend61 / Getty Images
LONDON — The consumer price index rose 10.1% in September, according to estimates published Wednesday by the Office for National Statistics, just exceeding a consensus forecast among economists polled by Reuters.
Reuters estimated an increase of 10% for September. The figure for September matches the 40-year high British inflation reached in July.
The rate rose in the year to September 2022 as the country’s cost-of-living crisis continues to hammer households and businesses ahead of a tough winter. Inflation unexpectedly dipped to 9.9% in August, down from 10.1% in July, on the back of a fuel price decline.
Increasing food, transport and energy prices were the biggest contributing factors to inflation, the ONS said. Food was up 14.6% year-on-year, transport was up 10.9% compared to last year, while the price of furniture and household goods rose 10.8%.
Sterling fell against the dollar following the news, trading at $1.1289, down from $1.1330.
The inflation data will also impact the Bank of England’s approach for the near term, just as the Bank plans to sell off some of its government bonds, known as gilts, from Nov. 1.
Britain’s Finance Minister Jeremy Hunt said in a statement that “help for the most vulnerable” will be a priority as the U.K. weathers high inflation rates, along with “delivering wider economic stability and driving long-term growth that will help everyone.”
September’s inflation rate highlights the severity of the U.K.’s inflation crisis, and comes as the country weathers a period of economic volatility.
On Monday the new British Finance Minister Jeremy Hunt reversed the majority of the tax cuts introduced by his predecessor, Kwasi Kwarteng, on Sept. 23, and Prime Minister Liz Truss apologized for “mistakes” that had caused severe market turbulence.
Questions are now being raised over how long Truss will remain in office.
UK inflation hits 10% as cost-of-living crisis accelerates
Annual consumer price inflation hit 10.1% in July, according to data published by the Office for National Statistics on Wednesday, up from 9.4% in June. Soaring food prices — up 12.7% since July 2021 — were the largest single contributor to the acceleration in inflation, the ONS said.
The headline inflation number was higher than predicted by a Reuters poll of economists, and food inflation is now running at its highest level in 14 years.
“All the eleven food and non-alcoholic beverage classes made upward contributions to the change in the annual inflation rate, where prices overall rose this year but fell a year ago,” the ONS said.
The largest upward contributions came from bread and cereals, and from milk, cheese and eggs, with notable price increases in cheddar cheese and yoghurts.
On a monthly basis, the consumer price index was up 0.6% in July, compared with no change a year ago. Higher gasoline and diesel prices, together with rising air fares, were also to blame, the ONS added.
The higher-than-expected reading will keep the pressure on the Bank of England to follow last month’s biggest increase in interest rates in 27 years with further rate hikes despite mounting evidence of the pressure on household budgets and signs that the UK economy may already have entered a recession.
Data published last week showed that the country’s GDP dropped by 0.1% in the second quarter of this year.
‘Miserable’ for consumers
And Tuesday’s official labor market report found that paychecks rose by 4.7% between April and June, meaning average incomes fell by 3% during the period once inflation is taken into account — the biggest drop in real wages since the ONS began keeping records more than 20 years ago.
“The situation is miserable for UK consumers, who are currently being squeezed from all sides,” wrote Kallum Pickering, senior economist at Berenberg, in a note to clients. “Wages are not rising fast enough to offset surging inflation, but they are rising too fast for the [Bank of England’s] liking, as it wants to return inflation to target,” he added.
Inflation is forecast to go even higher later this year, driven by further rises in regulated energy bills in October. Electricity prices have already risen by 54% and gas prices by 95.7% in the 12 months to July 2022 because of rocketing wholesale costs, worsened by Russia’s invasion of Ukraine in late February.
UK government officials are reportedly examining options to provide more support to households. But Liz Truss, frontrunner to succeed Boris Johnson as next UK prime minister in early September, has yet to set out a detailed plan beyond promising tax cuts.
The opposition Labour Party is calling for a windfall tax on UK oil and gas companies to be extended to help fund a freeze in household heating bills this winter.
— Anna Cooban and Rob North contributed to this article.
Premium products take priority as companies battle cost-of-living
“As we create more premium beverages, it becomes more difficult for customers to replicate it at home and we think that helps with the concept of trade down,” Starbucks CFO Rachel Ruggeri told CNBC’s “Squawk Box” on Aug. 3.
Gary Hershorn / Contributor / Getty Images
Personalized coffees, “prestige” skincare and “elevated” sauces and spreads are just some examples of how companies like Starbucks, Unilever and Kraft Heinz are tilting their focus toward premium products — and consumers appear to be loving it.
But why are companies zooming in on their pricier offerings when consumers are feeling the effects of the biggest inflation shock in decades?
“Customer insight is key for consumer businesses as the cost of living squeeze tightens,” Paul Martin, KPMG’s U.K. Head of Retail, told CNBC.
“Whilst it’s true that some consumers are having to increasingly turn to value products and watch every penny, it is also the case that other consumers are nervous about the economic outlook but still have money to spend and are in essence trading down to premium products,” Martin said.
“For example, swapping meals out for premium meals in. Whilst this group will also look to save money via the value essentials, they won’t be filling the basket solely with them,” he said.
‘An offering that’s worth paying for’
Starbucks reported record customer counts and sales in the last quarter, beating Wall Street expectations. The results appear to reaffirm the view that some customers aren’t trading down or reducing their spending despite the increasing cost of living.
Designing bespoke products is key to upping customer engagement even when money is tight, Starbucks CFO Rachel Ruggeri told CNBC’s “Squawk Box” on Aug. 3.
“As we create more premium beverages, that’s more difficult for customers to replicate at home and we think that helps with the concept of trade down,” Ruggeri said. “It may mean that maybe a customer doesn’t come as frequently, but we want to ensure that we have reasons for the customers to come into the stores and interact with us.”
Giving customers more flexibility also helped to sell more expensive products and pass on higher costs, Ruggeri said.
“We’ve been able to do that through our personalization, which is a choice, and what we’ve seen so far is our demand is strong. And that tells us that we have an offering that’s worth paying for,” she said.
The focus on premium products isn’t unique to the largest coffee chain in the U.S.
Kraft Heinz is getting in on the luxury market with the launch of its HEINZ 57 Collection in July. The “chef-inspired” condiments are “designed to add magic to the culinary experience,” according to the company.
This came as the company lifted prices by more than 12% in response to higher transportation, labor and ingredients costs amid rising inflation.
The introduction of more premium products is in addition to redesigns of classic products, according to the company’s U.S. president Carlos Abrams-Rivera.
“One focus is how do we optimise formulas to bring in ingredients that are cheaper,” Abrams-Rivera told CNBC’s “Squawk Box” on July 28. “And how do we customise our products to the different consumers so they can access different products at different price points.”
Treading a similar path is Mondelez. The company announced in June a deal to acquire organic-focussed Clif Bar & Company, while all the company’s 2021 acquisitions — Hu Master Holdings, Lion/Gemstone Topco and Gourmet Food Holdings — were described as “premium” in its second-quarter earnings report.
‘Value faces a boom and so does premium’
Unsurprisingly, consumers are also reliant on cheaper products, which companies are also sensitive to.
McDonald’s, for example, attributed some of its growth in the U.S. to its value products in its Q2 2022 earnings report.
Other companies are looking to attract both ends of the market by focussing on higher and lower-priced products.
Nestle CEO Mark Schneider told investors in the company’s half-year results earnings call that the approach has been used before.
“What we’re seeing with the current situation is similar to what happened in previous economic slowdowns and downturns,” Schneider said. “We pay attention to premium products but we also pay attention to affordable products. By covering both ends of this spectrum we’re doing well and we’re serving those needs.”
Appealing to the widest possible customer base is key to maintaining and growing profits in the current economic climate, according to KPMG’s Martin.
“In this landscape, value faces a boom and so does premium. Supermarkets recognize it, including the discounters, who are expanding their core value ranges, but also beefing up their premium proposition. Their aim is to capture and retain all of the trade-down audiences,” Martin said.
Driving desirability and sales
Unilever CEO Alan Jope told CNBC’s “Squawk Box” that the company was seeing a mixture of customers trading up and trading down.
“The premium ranges in our portfolio are actually doing very well … We are seeing some downtrading – that’s on pack size, where people are moving to more affordable formats,” he said on July 26.
In 2014, Unilever launched Prestige, a luxury arm of the conglomerate that now includes Dermalogica, Tatcha and Paula’s Choice.
Described as “a string of pearls” by Executive VP and Group CEO Vasiliki Petrou in December, the model relies on “a certain level of scarcity” to drive desirability and sales.
So far, it appears to have worked. Beauty & Personal Care grew 7.5% in the last quarter, driven by “strong growth” in Prestige Beauty and Health & Wellbeing, according to the company’s Q2 2022 results announcement.
A focus on premium products can also be a more palatable means of tackling inflation costs compared to reducing items or packaging sizes, according to EY global consumer leader Kristina Rogers.
“There is a limit to these actions and considering that input costs continue to rise, companies are looking at how to expand the value of their products,” Rogers told CNBC.
“The only way to grow is therefore to go the premium and added value route. Companies need to demonstrate the added value of their brands and give consumers a good reason to buy higher-priced products,” Rogers said.
“Companies are focusing on increasing the features of their product to extend consumers’ willingness to pay. These features include brand building, higher quality products, sustainability, or health features, to help validate a higher premium to be charged,” she added.
UK inflation hits new 40-year high of 9.4% as cost-of-living crisis deepens
ONS figures showed that real wages in the U.K. over the three months to May experienced their steepest decline since records began in 2001.
Henry Nicholls | Reuters
LONDON — U.K. inflation hit yet another new 40-year high in June as food and energy prices continued to soar, escalating the country’s historic cost-of-living crisis.
The consumer price index rose 9.4% annually, according to estimates out Wednesday, slightly above a consensus forecast among economists polled by Reuters and up from 9.1% in May.
This represented a 0.8% monthly incline in consumer prices, exceeding the the previous month’s 0.7% rise but remaining short of the 2.5% monthly increase in April.
The U.K.’s Office for National Statistics said in Wednesday’s report that its indicative modelled consumer price inflation estimates “suggest that the CPI rate would last have been higher around 1982, where estimates range from nearly 11% in January down to approximately 6.5% in December.”
The most significant contributors to the rising inflation rate came from motor fuels and food, the ONS said, with the former soaring 42.3% on the year, the highest rate since before the start of the constructed historical series in 1989.
50 basis point hike?
The Bank of England has implemented five consecutive 25 basis point hikes to interest rates as it looks to rein in inflation, but Governor Andrew Bailey suggested in a speech at the Mansion House Financial and Professional Services Dinner on Tuesday that the Monetary Policy Committee could consider a 50 basis point hike at its August policy meeting.
This would constitute the U.K.’s biggest single increase in interest rates for nearly 30 years, and Bailey vowed that there would be “no ifs or buts” in the Bank’s commitment to return inflation to its 2% target. The governor has received public criticism from several of the Conservative Party hopefuls to replace Boris Johnson as prime minister.
“From the perspective of monetary policy, these times are the largest challenge to the monetary policy regime of inflation targeting that we have seen in the quarter century since the MPC was created in 1997,” Bailey said.
“That emphatically does not mean the regime has failed. Far from it. The regime was set up for times exactly like these. The regime, founded on central bank independence, is now more important than ever. The worth of any regime is tested in the difficult, not the nice, times.”
The Bank expects inflation to peak at around 11% later in the year, while new ONS figures Tuesday showed that real wages in the U.K. over the three months to May experienced their steepest decline since records began in 2001, as pay increases failed to draw close to the inflation rate.
“The intense cost of living squeeze is putting significant pressure on the UK’s consumer-led economy and means the risk of recession is high,” said Hussain Mehdi, macro and investment strategist at HSBC Asset Management.
“Nevertheless, the Bank of England is likely to remain in uber-hawkish mode as it attempts to counter the risk of a wage-price spiral developing with recent data suggesting a still hot labor market that is contributing to domestic inflationary pressures.”
Social Security recipients could see biggest cost-of-living raise in 40 years
Marcus & Millichap CEO Hessam Nadji provides insight into the commercial real estate market as the country reopens.
Social Security recipients are on track to receive the biggest cost-of-living raise in four decades, driven by a rapidly rebounding economy that’s caused the biggest surge in inflation in years.
The Senior Citizens League, a nonpartisan group that focuses on issues relating to older Americans, estimated the adjustment could be as high as 6.1%, based on June inflation data, which showed that consumer prices in June spiked 5.4% from a year prior, the fastest year-over-year jump since 2008.
The annual Social Security change is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W.
SURGING INFLATION COULD DERAIL ECONOMIC RECOVERY FROM PANDEMIC, IMF WARNS
Should Social Security beneficiaries see a 6.1% increase to their monthly checks next year, it would mark the steepest annual adjustment since 1983, when recipients saw a 7.4% bump. The Senior Citizens League previously predicted the COLA for 2022 could be 5.3% based on data from May.
“That’s inflation on steroids, mostly attributable to energy prices,” Mary Johnson, a Social Security analyst for the Senior Citizens League, previously said.
In 2021, recipients received one of the lowest COLA increases in years, with an increase of just 1.3%, or about an extra $20 a month for retirees.
CONSUMER PRICES SURGE 5% ANNUALLY, MOST SINCE AUGUST 2008
The estimated figure could still be subject to change, and ultimately hinges on the economy’s performance over the next few months and whether the Federal Reserve raises interest rates to combat rising inflation.
Chairman Jerome Powell indicated last week while testifying on Capitol Hill that central bank policymakers are not considering pumping the brakes anytime soon, telling lawmakers that the economy is a “ways off” from where it needs to be for the Fed to begin unwinding ultra-easy monetary policies put in place during the pandemic.
The Social Security Administration will release the final adjustment percentage in October.
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Since 2000, Social Security benefits have lost roughly 30% of their purchasing power due to inadequate adjustments that underestimate inflation and rising health care costs, according to the Senior Citizens League. The group has pushed Congress to adopt legislation that would index the adjustment to inflation specifically for seniors, such as the Consumer Price Index for the Elderly, or the CPI-E. That index specifically tracks the spending of households with people aged 62 and older.
On the campaign trail, President Biden said he supported shoring up Social Security solvency by tethering the annual adjustment to the CPI-E, rather than the CPI-W.