This winter, it’s cold outside in more ways than one. Households preparing for the first festive season unaffected by Covid restrictions since 2019 will have to open their wallets wide for a very costly Christmas.
The highest inflation rate in four decades, combined with pandemic-related supply chain issues, the impact of extreme weather, and the fallout from the war in Ukraine add up to a lump of coal in the nation’s stocking.
The Financial Times crunched the numbers on Christmas spending on a basket of goods including a turkey dinner, snacks and sparkling wine, as well as gifts and found that costs had risen 14 per cent since last year.
Christmas dinner alone is up almost 12 per cent, analysis from consumer research firm Retail Economics show. This does not include energy, where a “typical” annual gas and electricity bill has risen by 96 per cent from the winter 2021/22 price cap to £2,500.
As a result of these increasing costs, plenty of people are preparing to play Scrooge when it comes to their festivities. More than half of the 2,000 respondents of consumer research firm Mintel’s Christmas spending survey say they will be sticking to stricter budgets, while about a third say they are planning to spend less on food and drink as well as preparing the home for Christmas.
“People will still want to have good Christmas,” says Nick Carroll, Mintel’s category director of retail insights. However, inflationary pressures mean that “people will be cutting back. We’re already seeing that. Value is much higher on the agenda.”
On overall spending, Mintel forecasts retail sales by value in November and December to hit £89.9bn, an increase of 2.1 per cent compared with the same time last year, with this year’s growth largely driven by inflation. Total sales by volume are forecast to decline by 4.6 per cent due to the fall in discretionary spending, according to the research firm.
Here is how some of the staples of the Christmas experience in the UK will be costing more this year:
The turkey dinner
Shoppers looking for free-range turkeys will have to fork out even more as UK producers have faced the worst-ever outbreak of avian flu in 2022.
Prices doubled, according to turkey farmers, as the disease and culls aiming to curb its spread had killed half the country’s 1.2mn to 1.3mn-strong flock of free-range turkeys before they could reach Christmas dinner tables, laying waste to farmers’ finances and creating scarcity of the festive birds.
Essex turkey farmer Paul Kelly, who raises KellyBronze free range birds as well as breeding young turkeys for other farms, says he has been able to recoup his 18 per cent rise in costs this year. For other farmers hit by avian flu, the impact has been devastating.
Gerald Botterill, who normally supplies birds to upmarket butchers Ginger Pig, says he lost all 18,000 of this year’s turkeys, geese, ducks and chickens in early November after discovering avian flu on his farm in Leicestershire. The octogenarian farmer says it was the worst event to hit his family farm since his childhood. “It’s been a horrible experience for everyone,” he adds. “We can’t keep the bird flu off because it’s brought by other birds — there’s nothing we can do about that.”
Consumers are turning to other meats this Christmas, with pork and beef gaining market share, according to food experts. Pilgrim’s UK, a leading pork producer, says it expects a 25 per cent uplift in gammon and pork crackling joints this Christmas, which were likely to be slow cooked to use less energy.
“Pork is likely to benefit as people look for cheaper roasting joints. Beef has more to do with the turkey shortage crisis and for those looking for a showcase for their Christmas dinner,” says Kim Heath, senior retail insight manager at AHDB, which advises UK farmers on agricultural markets and trade.
Party snacks and drinks
Rising ingredients, transportation and packaging costs have hit snacks, such as crisps and chocolate, as well as soft drinks. “Input prices have jumped, with pandemic-related supply chain problems still affecting costs,” says Siobhan Bentley, lead analyst at Retail Economics.
Companies including Unilever and Mondelez have been passing on costs to consumers by either raising prices or by reducing the size of their products. “Shrinkflation” has long been a feature as consumer goods companies try to maintain prices by shrinking the size of products such as chocolate.
Christmas trees
The price of a fir tree is up about 10-15 per cent after the severe drought in the UK and Europe this summer, as well as warmer temperatures in the autumn has affected both quantity and quality of stock this year.
Transport and labour costs have continued to rise, while some importers are still feeling the effects of last year’s supply chain problems wrought by a lack of timber pallets, which created a bottleneck for shipping.
Chris Bonnett, chief executive of online gardening centre Gardening Express, which sells both UK and imported trees, says that the weather had led to quality issues and a shorter harvest period.
“There have been supply issues in Europe due to the drought and warm temperatures in the autumn, which leads to shorter harvest periods and higher labour costs,” he says. “Quality has also been impacted by the hot summer weather, which has led to a rise in prices.”
Bonnett, who monitors prices around the country in order to remain competitive, say that although tree prices differ in quality and size, the most popular 6-7 foot Nordmann fir costs around £40-50, up from about £35-£45, he says.
“The cost at DIY centres is about £38 and about £30 at large supermarkets. At independent garden centres, they would cost about £59.99 and £80 at top end garden centres.”
Gifts
Especially for younger members of the household, what is under the tree is just as important.
The picture for children’s goods is a little more complicated than other rising costs. Price inflation for toys has been about 6.5 per cent, according to Retail Economics, due to supply chain disruption, particularly in China, and rising energy and shipping costs. Prices for some lower price bracket items, such as soft toys, have declined, however.
That’s good news for the third of customers planning to spend less on toys and games this year, per Mintel’s survey. “Consumers have certainly shifted to a lower price point,” says Paul Reader, who led the 2022 Toy Retailers Association’s compilation of dream toys expected to be popular this Christmas.
Dreaming of a bright Christmas
It may seem grim right now, but economists bring tidings of gladness and joy: next Christmas won’t be as hard to swallow. Most are forecasting UK inflation to peak and consumer price inflation to fall in 2023.
“The outlook is optimistic,” says Paul Dales, chief UK economist at Capital Economics, who forecasts consumer price inflation to fall to 4 per cent by December next year. “[This] is still higher than policymakers would like, but much lower than 11 per cent now.”
Although the risk of food prices increasing again remains high, according to the IMF, real wages appear to have bottomed out.
“The decline in real wages is at its worst at the moment and will become less marked over the next six months. Real wages will probably grow again by the end of next year,” says Dales.
And although the UK economy is forecast to be in recession for much of 2023, the British Chambers of Commerce predicts a return to growth by the fourth quarter. A happy new year is just around the corner.
This post was originally published on Financial Times
