“Alarm bells, not sleigh bells,” says report highlighting the inflation of a basket of luxury festive goods hitting 7.2%, well above the national average ahead of Christmas
A recent report by a leading private bank has claimed “inflation is for life, not just for Christmas”. Coutts has created a Luxury Price Index (LPI) to identify the biggest rises in price ahead of the festive season. Much like the UK consumer price index (CPI) used by the Bank of England to assess inflation, the index covers “a basket” of goods. Counting 132 luxury items and services from across 12 categories, Coutts’ LPI revealed that, whilst overall the luxury inflation rate has fallen sharply in the last six months, from 6.2% in May to 3.6% in November, it still remains well above the UK CPI which is currently 3.1% – the highest for 6 years.
As consumers look to buy presents and supplies for Christmas and the festive period, the addition of luxury goods inflation above standard inflation will feel particularly painful. In addition to this the UK is also suffering from historically low wage-growth and sluggish economic growth. As Christmas approaches the report puts luxury item inflation at around 5.7% above GDP growth.
“This index brings into sharp focus the need for wealthy individuals to think carefully about how they can protect the purchasing power of their wealth,” said Sven Balzer, Coutts’ senior strategy manager. “Although luxury inflation has fallen sharply in the last six months, it still remains well above the UK CPI. This sends a sharp message to high net worth individuals – inflation on luxury goods and services remains a material risk to their wealth as it continues to erode the spending power of their cash.”
The products seeing the biggest price increase were high-end mobile phones, the cost of which rose 36%; luxury alcohol, which rose 31% and premium tea which was up 20%. Champagne was assessed to have risen 16% in price year on year. The report noted that as well as currency devaluation, luxury good prices are also susceptible to increasing demand levels. However, the pattern was not repeated across all asset classes. While communications services had seen inflation of 30% and education had gone up 5.2%, high-end homes had gone down by 1%.