Price hikes defy logic

The price of a barrel of oil has halved in the space of six months, driving inflation as measured by the consumer prices index (CPI) to 0.5% — its joint lowest level since records began in 1989.

In many areas of people’s lives, prices are falling — petrol at the pumps, gas and electricity in their homes, and food and drink in
their supermarkets.

But the price of a pint of beer is going up, thanks to the annual (or should that be traditional) round of product price increases.

While not all the brand owners have yet revealed their hand, we’re typically seeing a circa 3% uplift in the price of beer out of the brewery gate (4% excluding duty) — with the brewers blaming rising input prices and business running costs (perhaps they could share with us a breakdown of these upward pressures).

By the time the pubcos or wholesalers have added their increase to maintain (or enhance) their profit margin, and after licensees do the same (why should their GP suffer?), it wouldn’t be unreasonable to imagine that the result of this combined ‘adjustment’ will be a 10p-plus increase in the price of a pint to the consumer.

You can bet that when it comes to the annual pay rounds in April, employers up and down the land will be pointing to the CPI to justify negligible salary increases for their staff. And the self-employed will undoubtedly have their requests for higher fees rebuffed by their clients — probably those same companies that are putting up their own prices.

So the increase in the price of a pint at the bar will be a ‘real terms’ increase for most punters.

At the same time, the industry has been trumpeting the first rise in beer volume sales (up 1.3% in 2014 after nine years of decline, during which sales slumped by 24%), and attributing that to the effects of the abolition of the beer duty escalator and 1p per pint tax cut.

So why (and forgive me if I’m missing something), if we’re all recognising the much-needed positive effects of price elasticity, such that a cut in price has stimulated demand, are we now risking that by ramping up prices, particularly at a time when the inflationary environment doesn’t seem to warrant it?

The timing is rotten again too. Should licensees respond now to these price increases or wait to see what happens in the Budget? And then if the Chancellor grants us a further beer duty cut, how will they explain their enforced price increase to customers?

At least one major operator has written an open letter for its licensees to use with their customers to explain that the price rises are “not their fault”. But whether that will be enough to stop a number of them visiting less frequently, or buying less when they do, only time will tell.

I still vividly recall a company boss once telling me that it is always a mistake not to implement annual cost-of-living price increases — because it erodes your bottom line and makes it hard to catch up. I think most people understand that.

But noticeably above-inflation price increases just look cynical.