Contrary to what official inflation data shows, consumers believe prices have been rising at close to double-digit levels in the past five months. In December, people believed that prices were up 11.3% on a year ago, up from 8.1% in November and above the 5-month average (9.5%) over the period of the GfK NOP survey*. By contrast the latest official level of consumer price inflation is 3.7% - 7.5 percentage points below what people feel they are experiencing.
Women, the over 65s and people in the lowest household income band are most affected. In December, women – who generally have greater responsibility for household shopping – believe prices surged 14.2% over the past 12 months, up from 10.2% in November and above the 5-month average of 11.5%.
The over 65s, many on fixed incomes and heavily dependent on the State pension and benefits, reported prices up 12.4% in December, and averaging over 10% in the past 5 months. Many of this group will also be among the lowest household income band, who reported prices up 16.2% compared to 12 months ago.
Over the next 12 months, inflation expectations continue to rise- and are well above the levels the MPC factors in to its deliberations. In December the public expect a 9.6% rise in consumer prices in the next year, up from 7.3% in November and above the 8% average since the monthly survey started last August. Women (12%), the over 65s (11.2%)and the lowest household income band (14%) all have far greater than average expectations.
Regionally, people in Wales feel most affected by rising prices. Over the past 12 months Welsh people believe prices have risen by 15.8% and believe they will rise 14.5% in the next 12 months.
With such a high level of inflation expectations, the position of the MPC in not seeking to combat such fears by rising rates is stretching its credibility. Some help to the MPC is required from the Treasury given their decision to push VAT higher and not to introduce the fuel price escalator. As in 2000 the impact on rural communities of surging fuel prices is causing major difficulties with all the ingredients for a new wave of fuel protests and the economic dislocation this brings about. Saturday’s Western Morning News headline was ominous – “Fears of blockade in petrol protest”
A regular feature of the UK Consumer Confidence Monitor produced by JGFR is to analyse the inflation outlook and to gauge its ongoing impact on the consumer.
* GfK NOP ask 2,000 adults aged 16+ each month “By how much do you think consumer prices have changed over the past 12 months” and “By much do you think consumer prices are likely to change over the next 12 months?”
To discuss the survey data please contact John Gilbert (firstname.lastname@example.org)