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Inflation Is For Life, Not Just For Christmas

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Summary

The latest Coutts Luxury Price Index includes a ‘festive basket’ that shows rapidly rising prices.

2 min read

Prices of luxury goods and services popular over the festive period rose more than twice as fast as mainstream products over the past year, Coutts research shows.

We have taken 20 items from the latest edition of the Coutts Luxury Price Index (CLPI) which are likely to be popular over the coming weeks and grouped them in a ‘festive basket’.

Inflation on this basket is 7.2% – more than double the current UK Consumer Prices Index (CPI) which stands at 3%.

The festive basket includes a range of fine wines, foods and clothes as well as exclusive jewellery, premium perfumes and top-of-the-range computer tablets and headphones.

High-end mobile phones are one of the main drivers of its high inflation rate with prices up a massive 36%. Luxury alcohol is another key factor, with scarcity and rarity driving up costs 31%, and premium tea prices are up 20%.

The CLPI, updated twice a year, gives a meticulously researched, accurate measure of the effects of inflation on high-end items and experiences. While it does not show the overall inflation rate faced by wealthy consumers, it complements the UK CPI to reflect the luxury portion of their spending.

“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.”

It stands apart from many other unofficial inflation indices which are less scientific and based on less complete data sets. The latest edition measures luxury inflation over 12 months to November 2017.

Luxury inflation down as pound rises

The broad index covers a range of 132 goods and services from across 12 categories. Our latest results show the overall luxury inflation rate has fallen sharply in the last six months – from 6.2% in May to 3.6% in November – but remains above the 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.

People who spend extensively on luxury goods will experience different inflationary pressures than those represented by the CPI and it makes sense for them to think carefully about ways to protect the value of their money, such as a long-term diversified investment strategy.

The headline CLPI figure fell because the pound appreciated over the last six months, which muted price increases in the UK as the cost of imports dropped. This contrasts markedly to May when sterling slid and drove up the prices of luxury items. In the 12 months to May this year, the pound fell by 7.3% against other major currencies largely due to the European Union referendum result.


The largest price tags

Other significant price changes in the CLPI over the year to November are:
 



Housing

More high-end London properties are selling than last year but this hasn’t stopped prices falling to 2013 levels. There has been growth elsewhere in the country, such as the South East, the Midlands and the North, but overall the market is down 1%. There is hope for sellers though as the price decline is slowing.



Communications & Technology

More people are using technology on the go instead of on their desks and this is shown in our report. Inflation for portable devices like smart phones has soared to a massive 30% but the cost of high-end personal computers has stagnated.



Alcohol

Quality is the order of the day when it comes to alcohol, with champagne prices up about 16% and burgundies up 20% year-on-year. This is driven by increasing demand from investors and consumers alike for what is, by its nature, a limited commodity.

 


Education

It has long been acknowledged that private schooling fees increase faster than inflation and the CLPI reflects this, with higher staffing costs the main driver.

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Housing

More high-end London properties are selling than last year but this hasn’t stopped prices falling to 2013 levels. There has been growth elsewhere in the country, such as the South East, the Midlands and the North, but overall the market is down 1%. There is hope for sellers though as the price decline is slowing.



Communications & Technology

More people are using technology on the go instead of on their desks and this is shown in our report. Inflation for portable devices like smart phones has soared to a massive 30% but the cost of high-end personal computers has stagnated.



Alcohol

Quality is the order of the day when it comes to alcohol, with champagne prices up about 16% and burgundies up 20% year-on-year. This is driven by increasing demand from investors and consumers alike for what is, by its nature, a limited commodity.

 


Education

It has long been acknowledged that private schooling fees increase faster than inflation and the CLPI reflects this, with higher staffing costs the main driver

All figures 12 months to November 2017. Source: Coutts & Co.

If you would like to discuss how Coutts can help you plan for the future and protect your wealth, contact your private banker.

Key Takeaways

Luxury inflation fell in the six months to November but stayed above mainstream price rises in the UK. Meanwhile our festive basket showed inflation more than twice as high as the Consumer Prices Index. This reinforces the need for wealthy individuals to work harder to protect the purchasing power of their money.

About Coutts investments

With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

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