The UK’s cheapest supermarket Christmas dinner will cost 18% more than it did last year, as the impact of inflation and Brexit-related commodity costs makes its way to the festive family table.
Inflation is when prices rise. Deflation is the opposite – price decreases over time – but inflation is far more common.
If inflation is 10%, then a £50 pair of shoes will cost £55 in a year's time and £60.50 a year after that.
Inflation eats away at the value of wages and savings – if you earn 10% on your savings but inflation is 10%, the real rate of interest on your pot is actually 0%.
A relatively new phenomenon, inflation has become a real worry for governments since the 1960s.
As a rule of thumb, times of high inflation are good for borrowers and bad for investors.
Mortgages are a good example of how borrowing can be advantageous – annual inflation of 10% over seven years halves the real value of a mortgage.
On the other hand, pensioners, who depend on a fixed income, watch the value of their assets erode.
The government's preferred measure of inflation, and the one the Bank of England takes into account when setting interest rates, is the consumer price index (CPI).
The retail prices index (RPI) is often used in wage negotiations.
The annual yuletide food survey by Good Housekeeping magazine found that the cost of the cheapest set-piece meal on Christmas Day – for 8 people and including 11 ingredients from turkey to fresh vegetables and cranberry sauce – had risen from £19.82 to £23.53, or from £2.48 a head to £2.94.
The Good Housekeeping basket comprises of a whole turkey weighing at least 3.5kg, at least 880g each of potatoes, sprouts, carrots and parsnips; stuffing mix; a jar of cranberry sauce; at least 900g of Christmas pudding, Christmas cake, at least eight mince pies and a jar of brandy butter.
Nine of the 11 cheapest items cost more than last year, including turkey, which is now £8.99 from last year’s £8, and sage and onion stuffing mix, which has increased from 30p to 34p. Good Housekeeping said the increased cost was due to the pound’s fall since last year’s referendum, which has pushed up the cost of food imports, and an inflation rate that has hit 3%.
“There’s been a significant rise in food prices across the board over the last year as a result of the weakening of the pound following the Brexit vote. Add to this inflation being stuck at a five-year high, and it’s no surprise to see the Christmas grocery bill has increased too,” said Caroline Bloor, Good Housekeeping’s consumer director.
Overall, Lidl and Aldi have again trounced the competition, emerging as the cheapest supermarkets when it comes to the entire list on one place, with dinner for eight coming in at £25.53 and £25.68 respectively.
Food prices generally had been tumbling in recent years as all the big supermarkets have had to react to the rise of the German discounters with aggressive price cutting. But the baskets from nine of the 10 supermarkets are more expensive than last year, with Aldi, Morrisons and Iceland all increasing their prices by more than 13%. Marks & Spencer is the only supermarket whose basket is cheaper, 20% less at £38.43, but still the second priciest. The most expensive overall was Waitrose’s at £41.47.
Kay Neufeld, an economist at economics consultancy the Cebr, said:“Prices have been on the rise since the EU referendum last year with inflation projected to peak just before Christmas. Due to intense competition between supermarkets in the UK, the cost of food had been falling for much of 2015 and 2016. However, as the UK imports over half of its food the depreciation of sterling inevitably feeds through into higher prices at the till. UK households will be relieved to know that inflationary pressures are expected to subside over 2018.”
New data published this month by the Office for National Statistics showed food prices in October were up by 4.2% on 12 months earlier, a sharp rise on the 0.6% increase the previous year. The October increase was the highest since 2013 and prompted the British Retail Consortium to warn that consumers face the prospect of an expensive Christmas dinner this year.
Among the sharpest price increases was an 8.5% rise in the price of fish, with vegetables up 5.7%, fats and oils up 5.6%, and milk, cheese and eggs up 4.8%.
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