UK Inflation Bulletin: Retailers and producers set to benefit from the Scottish alcohol minimum price

Simon-Kucher & Partners Inflation Bulletin

Inflation stayed constant at 2.4% in May 2018, whilst the impact of the Scottish minimum alcohol price will barely be felt in the UK figures

The May CPI inflation figures unveiled this morning are the first to include the impact of the new mminimum alcohol pricing in Scotland, which came into effect on May 1st 2018. Simon-Kucher calculates that this new price floor of 50p per unit of alcohol means the average price per unit of alcohol (PPU) increased by 10% (moving the average PPU from 53p to 58p). 

The price increase will barely be felt in the overall UK CPI rate this month as Scottish alcohol sales account for just 0.2% of the total CPI basket. However, Simon-Kucher calculates it will benefit retailers and producers by around £90 million over the next 12 months, while if it were introduced to the rest of the country they would gain a further £750 million.

 

Scottish alcohol prices will likely increase further

James Brown commented: The new minimum alcohol price in Scotland is aimed at increasing the cost of cheap alcohol. But it will also cause a ripple of further price increases across other alcoholic drinks as retailers and manufacturers increase their prices to keep a gap with their low-cost competitors. So it’s likely that the average price increase in Scotland will eventually be even higher than 10%.”

 

The new minimum alcohol price will benefit retailers and producers (more than the Treasury)

James Brown commented: The minimum alcohol price follows hot on the heels of the UK government’s introduction of a tax on high sugar drinks. The big difference between the two policies is where the extra revenue will go. With the Sugar Tax the winner is the Treasury who benefits from extra tax generated.  With the minimum alcohol price, the alcohol producers and retailers will be the main beneficiaries thanks to higher revenues on lower volumes.

 

Impact of a trade war on prices

James Brown commented: “A potential trade war with the US risks higher costs and economic damage. The impact of counter tariffs would be painful for sectors that are importers of targeted goods and raw materials.”

“Any cost increases businesses suffer will likely be passed on to consumers in the form of higher prices. Switches to local products takes time and often comes at higher cost. So if a trade war did develop, statisticians and policy makers will be watching for the impact and consumers will be watching their wallets.

 


Want to know more? Read our previous Inflation Bulletins

January 2018 | February 2018 | March 2018 | April 2018 | May 2018