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 (j.gilbert@jgfr.co.uk)