Mid Week Market Moment : 13 October 2016
MARMITE BREXIT PRICE INCREASE: You either love it or you hate it!
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Here we go again.. of course we always knew – deep down – that this went on behind the scenes… This morning’s early news was dominated by rumours that one of the UK’s big retailers – TESCO – was having a major fight with one of its larger suppliers – UNILEVER – over their 10% price increase on their range of products supplied to Tesco – “due to Brexit and the weakening pound” – and had allegedly stopped taking in UNILEVER supplies – but now it is out in the open – the likes of Tesco and other large retailers play hardball when it comes to negotiating prices with their suppliers – and it looks like they play even harder when it comes to resisting price increases being imposed on them by the larger corporates, a considerable number of whom trade internationally and most likely see such price conflicts in the UK as nothing more than necessary “regional discussions”.
But didn’t someone mention that MARMITE – one of Unilever’s products – is made in the UK with ingredients sourced entirely from within the UK?! Very interesting… So the weaker pound buys less pounds now too! So should we expect consumer panic at the news of Marmite supplies in jeopardy? Should we be celebrating? Will we see a run on Marmite as people rush to stock up while they can? To be fair – it cannot be easy trying to come up with yet even more original reasons why the supplier in question should have another price increase this year as well as the one they had last year. Clearly Unilever were hoping not to have to endure yet another of the customary “flinches” they always get from the Head Office Buyers when confronted with the proposal of a planned price hike.
And what of the other supermarket retailers? Probably keeping their heads down trying not to draw attention to an imminent price shift. Like the SBS who are quite happy for the SAS to get all the limelight so it can quietly get on with the job in relative obscurity: covert operations; the other supermarket retailers would no doubt rather TESCO “stole the show” on this one, leaving everyone else to quietly get on with the job in relative obscurity: trying to reposition prices on relatively high volume product lines but not too much as to attract unwanted consumer “attention”.
On a different note – the weaker pound GBP against the dollar has had an impact on fuel prices at the pump. While dollar USD prices may remain relatively stable – the weaker Sterling Dollar “Cable Rate” means everything bought in dollars is now more expensive to the UK buyer – and this includes Fuel. Most UK trading operations probably don’t hold much stock of anything – because that’s just tying up cash – so price fluctuations at source are felt much more quickly down the line. Since everything at some point has to be delivered – predominantly by road transport – fuel pricing is one factor that will affect the pricing of most other delivered goods pretty much straight away.
The international nature of many companies quoted on the London Stock Exchange and in particular within the FTSE 100 means that trading volumes and results when converted back into Sterling GBP for reporting purposes have shown good sterling performance – even though the underlying operations may not have seen sales and profit improvements on such a scale.
Back to Marmite – A survey of local supermarkets near our offices produced an unclear view of whether or not Marmite stocks were in jeopardy – well it wasn’t scientific in the first place – what was most surprising was how in general food prices have crept up and up and up – our personal favourite being the price of loose mushrooms – £3 approx. per kg – it is not that long ago that you could buy a good bit of chicken for that – while beef comes in at more like £13 per kg, cooked chicken pieces in a packet can cost £20 approx. per kg. For the record we found that a small 70g jar of Marmite cost about £1.00 – ie an eye-watering £14.30 per kg !
Some would argue that at a time when the family wage is already under pressure – another price increase – for what ever reason – is “a bridge too far” – Perhaps on this occasion, Tesco et al have the right idea.
Enjoy your food shopping!
If you have any questions please do not hesitate to contact us – we’ll be happy to discuss these with you.
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Inflation Target expected to stay in place: 2.0% based on the Consumer Prices Index (CPI)
The Chancellor confirmed in his Budget Speech Wednesday 20th March 2013 that the 2% Inflation target for the Bank of England would stay in place.
The Government’s Inflation Target is announced each year by the Chancellor of the Exchequer in the annual Budget statement. The Bank of England Monetary Policy Committee has as one of its aims, the aim to set interest rates so that over- or under- inflation can be brought back to Inflation Target over a reasonable time period without creating undue instability in the economy. Inflation Target is not a permanently fixed level and may vary depending on prevailing economic and fiscal conditions.
KEY to Important Indeces:
RONIA – Repurchase Overnight Index Average Rate – Launched June 2011
Changes to Method of Calculating Inflation Measurement Index – March 2013
pmL Metal and Precious Metal Pricing used in Market Numbers
lme3 – London Metal Exchange 3 months
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