No one has made the transition from no-frills, cheap and utilitarian to must-have, high-margin fashion with more skill than Dr Martens, a FTSE 250 company weighing in at £4 billion. A pair of its chunky lace-up workman’s boots, which were once favoured by posties, coppers and skinheads, costs £149.
But not for much longer. Like pretty much every boss I talk to these days, chief executive Kenny Wilson is preparing to put up his prices. His shipping costs have risen, his raw material costs are up and his labour costs are up.
From next year, the classic “1460” — so called because the first yellow-stitched boot came off the production line in Wollaston, Northamptonshire, on 1 April 1960 — is going up to £159. That’s a 6.7 per cent price rise and will be the first increase in two years.
The latest survey evidence from Make UK shows Wilson is far from alone. Manufacturers are putting up their selling prices at the fastest rate in 21 years. Price increases of as much as 10 per cent have become “a regular occurrence”, it says.
Tomorrow we will learn how much this is feeding into retail prices and the cost of living. The consensus is for the annual rise in the widely used consumer prices index to have picked up from 4.2 per cent in October to 4.7 per cent in November. Some economists believe the new number may even have 5 at the front of it. Eek!
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It wouldn’t be terribly surprising. On Friday the United States posted an official annual inflation rate of 6.8 per cent for November, up from 6.2 per cent in October, as soaring energy costs fed through. It’s more than a little awkward for the US Federal Reserve, which, like the Bank of England, has a 2 per cent target.
The inflation rate used to be one of those closely watched and fiercely emotional macroeconomic numbers — far more so than, say, GDP growth or the trade deficit or even the value of the pound. When the UK inflation rate hit 26.9 per cent in August 1975, it was front page news. Only unemployment is a more charged number, one that voters use to judge the competence of ministers.
But after 40 years of largely quiescent inflation, CPI is no longer the bogeyman it once was. Even in Germany, where the hyperinflation of the 1920s is seared into the soul of the nation, 6 per cent inflation — the EU-harmonised measure — hasn’t triggered the howls it would have.
In Britain, consumers are if anything behind the curve. They think, according to the latest Kantar survey, that inflation next year will be just 3.2 per cent. Even the Bank, repeatedly wrongfooted by this year’s price increases, has warned it will be 5 per cent by next spring.
It’s partly a tribute to the Bank that public attitudes remain so doveish. Sometimes inflation overshoots, sometimes it undershoots, but overall the Bank has done what it is supposed to do. The average annual inflation rate since 1997, when it was given the power to set monetary policy, has been 2 per cent.
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It’s hard to see that relaxed attitude lasting into next year. Living standards are about to fall for many. The 3.1 per cent rise in the state pension in April won’t be enough to sustain real incomes in a world of 5 per cent inflation. Heating bills are going to be a serious shock for the many who don’t follow the gyrations in the wholesale gas market. Supermarkets are reportedly planning significant price rises once Christmas is over. The Centre for Economics and Business Research reckons a typical household of two adults and two children will see a £1,700 increase in their bills next year.
With responsibility for inflation control resting with the Bank, the government has a bit of a figleaf. But ultimately, voters will blame elected politicians if they find their incomes stretching less far, especially politicians who in the UK are putting up national insurance. That sensitivity is already evident in the US, where inflation control is also devolved to the central bank, the Federal Reserve. After the bad inflation numbers last month and this month, President Biden felt obliged to issue formal statements, acknowledging that inflation was hitting the pocketbooks of Americans and that pulling the inflation rate down was a “top priority” for his administration.
Boris Johnson and Rishi Sunak, so far at least, don’t seem to feel under the same pressure — or perhaps have less sensitive antennae. On the day of the last bad UK inflation number, November 17, Johnson was trumpeting his export promotion plans on Twitter while the chancellor was crowing about the excellent unemployment numbers. There was not a peep from either about the unwelcome increase in the price level.
The Fed is likely to sound a more hawkish tone this week, the Bank of England less so when it makes its regular monetary policy decision on Thursday. A base rate rise, which was seen as probable only a few weeks ago, is now unlikely. The braking effect on the economy of the latest Omicron-induced restrictions will be enough to make the Bank pause a little longer, at least.
A UK inflation rate above 5 per cent wouldn’t be outside the realms of the manageable and reversible. After all, CPI growth hit 5.2 per cent in September 2011 as Britain clawed its way out of the financial crisis, but soon fizzled down to below the 2 per cent target with no need for a tightening of policy at all.
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But the odds this time are shortening on a more damaging outcome, where inflation starts to get baked into wage and price decisions, making it much harder to stamp out. The surge in prices has been until now largely about higher energy and raw materials prices. But rising labour costs are becoming more of an issue.
Central bankers are no longer using the T word, “transient”, to describe the I word — or not if they don’t want to be laughed at. Inflation is about to get more political than at any time since the 1970s.
Patrick Hosking is Financial Editor of The Times
