There’s No Such Thing as Inflation, UK Retail Edition
The FT report on today’s retail data starts like this:
Britons spent more in the shops last month as the UK economy strengthened, with department stores enjoying the biggest boost thanks to unusually heavy discounting.
“Unusually heavy discounting” – that means something like “cutting prices”. Or maybe, specifically, “selling goods for below sticker prices“.
Yet what does “inflation” measure? Does it capture sticker prices or actual prices of final sales to consumers? My bet is that consumer price surveys fail to capture discounting in any way accurately, and mainly capture changes in sticker prices. The ONS data has the implied deflator for retail sales rising to 1.7% in June. Hard to square that with “unusually heavy discounting?”
A nice example of discounting is provided by Tesco. If you order your groceries on-line from Tesco (yes, in Britain, supermarkets come to you), the day after delivery you might receive an e-mail like this:
Hello, We’ve checked your comparable grocery shop against Asda, Sainsbury’s and Morrisons. Here are the results:
This time your comparable grocery shopping would have been £1.75 cheaper elsewhere, so here is a voucher for the difference.
Now the next time I shop at Tesco, I can buy goods for (£1.75/£basket value)% below sticker prices. What hope do the ONS have in correctly measuring “inflation” when retailers are sending their customers personalised discounts? Not a hope in hell, I would say. Oh, and this also tells me that UK supply-side pessimists are Enemies of Prosperity who are completely wrong about everything. (Well, maybe some things). The Telegraph quote some interesting statistics from PwC:
Christine Cross, PwC’s chief retail adviser said discounts had continued in recent weeks. “Our figures support this as an on-going trend through July,” she said. “This week, 85pc of 100 high street retailers were on sale or advertising promotions in their shop window.
“Average price discounts however are up to 59pc, compared to 55pc in 2012 and 2011 – but still well below the 70pc of 2009.”
Back to that FT article for a contribution from a City rent-a-quote:
Martin Beck, an economist at Capital Economics, sounded a note of caution, questioning people’s ability to keep spending more at a time when inflation of 2.9 per cent is still much higher than wage growth of 1.7 per cent.
“With real incomes continuing to fall, the sustainability of a consumer revival remains in doubt,” he said. “But, for now, retailers will no doubt be happy to make hay while the sun shines.”
My advice to Mr. Beck: Spending = Income, don’t take the “inflation” thing too seriously.