Consumer expectations influence response to producer price movements

Consumer expectations influence response to producer price movements

According to the latest consumer price information published by the Office of National Statistics (ONS), 10% of total consumer spending is on food, with meat accounting for around 23% of food spending.

Stuart Ashworth, QMS head of economic services

Stuart Ashworth: “Consumers may be happy to take rapid falls in retail price, however, they are less likely to accept rapid increases in price.”

QMS head of economic services, Stuart Ashworth said: “Compared to twenty years ago, the importance of food spending has fallen from around 13% of all spending to 10%.

“This can be achieved by buying less food, by price movements on food not being as rapid as price movements on other consumables, by wages rising at a faster rate than food prices allowing more surplus cash to be spent on other items, or as a combination all these factors,” said Ashworth.

In the most recent ONS consumer price release, the retail price of meat has fallen 2.6% over the year to July 2015. Beef is 1.6% cheaper than a year ago, while pork is 2.8% cheaper, bacon 2% cheaper and poultry 6.7% cheaper – only lamb is reported to have increased in price at retail level.

Ashworth added: “Producers will quickly notice that these retail price movements bear little resemblance to producer price movements which in July saw cattle prices 7.5% higher than a year earlier, while lamb and pig prices were 17% lower.

“This illustrates the challenge of a consumer-facing retailer who is striving to manage consumer expectation, among which, volatility in retail price is not something the consumer likes.

“Consumers may be happy to take rapid falls in retail price, however, they are less likely to accept rapid increases in price,” Ashowrth said. “Instead they will adjust the volume of product they purchase, switching to more competitive proteins or in extreme cases resorting to political unrest.”

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