Restaurants and hotels facing ‘terrifying’ 18% inflation, MPs told | Inflation
Restaurants and hotels are wrestling with “terrifying” inflation running as high as 18%, bosses have warned, as supply chain disruption and labour shortages wreak havoc in the hospitality sector.
Ian Wright, chief executive of industry body the Food and Drink Federation, told MPs on the business, energy and industrial strategy committee that bodes ill for the retail industry.
“In hospitality, which is a precursor of retail, inflation is currently running somewhere between 14% and 18%. That is terrifying,” he said.
“Inflation is a bigger scourge than almost anything else because it discriminates against the poor.”
Q&A
What is inflation and why does it matter?
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Inflation is when prices rise. Deflation is the opposite – price decreases over time – but inflation is far more common.
If inflation is 10%, then a £50 pair of shoes will cost £55 in a year’s time and £60.50 a year after that.
Inflation eats away at the value of wages and savings – if you earn 10% on your savings but inflation is 10%, the real rate of interest on your pot is actually 0%.
A relatively new phenomenon, inflation has become a real worry for governments since the 1960s.
As a rule of thumb, times of high inflation are good for borrowers and bad for investors.
Mortgages are a good example of how borrowing can be advantageous – annual inflation of 10% over seven years halves the real value of a mortgage.
On the other hand, pensioners, who depend on a fixed income, watch the value of their assets erode.
The government’s preferred measure of inflation, and the one the Bank of England takes into account when setting interest rates, is the consumer price index (CPI).
The retail prices index (RPI) is often used in wage negotiations.
Wright cautioned the food and drink sector expects current challenges to last for several years. “Six months ago, almost all our businesses thought it was transitory, now every business I know is expecting this to last until 2023 and into 2024, every single one,” he said.
During a hearing about the impact of the supply chain crisis on consumers and business, Wright recalled high rates of inflation in the late 1970s, when he saw a supermarket employee change prices twice within an hour. “We really cannot go back to that. It took us 15 years to recover,” Wright said.
Food and drink producers have been squeezed by a combination of higher prices for raw materials, soaring wages, increased costs for transport amid the HGV driver shortage, and rising energy bills.
Inflation in the UK hit hit 3.2% in August, rising from 2% in July, according to the consumer prices index measure of inflation and figures from the Office for National Statistics (ONS).
Inflation is at its highest level in the UK since March 2012, and it is expected to increase further, adding to the squeeze on consumers just ahead of government raising taxes.
Soaring gas and electricity prices will also have an impact on household bills and the Bank of England expects inflation to rise above 4% this winter, well above its 2% target, increasing expectations that it will be forced to raise interest rates.
Manufacturers are facing price rises of between 30% and 40% for raw materials, according to Stephen Phipson, chief executive of trade body Make UK, which could become critical for certain firms if they are not able to pass on those costs.
“To the extent we are seeing now, they are not passing on all of it and that can only persist for a number of months, six months would be my best guess, before we start to see real failures in terms of businesses,” Phipson said.
Phipson said firms are, like many other sectors of the economy, suffering from the lack of availability of lorry drivers.
However, the government’s recent moves to improve the labour squeeze in the logistics industry – allowing drivers from abroad to apply for temporary visas and a relaxation on the number of deliveries permitted within the UK for foreign-registered trucks, also known as “cabotage” – have not yet improved the situation, according to trade body the Road Haulage Association (RHA).
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What is ‘cabotage’?
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Cabotage refers to the practice of domestic road movements of freight being undertaken by foreign-registered trucks.
Derived from the French verb caboter, meaning to sail along the coast, cabotage originally took place in the shipping industry, when foreign merchants would collect loads and drop them off within other countries.
Nowadays, “cabotage” is mostly used in conjunction with transport of goods by road. For example, if a Polish HGV brought goods to the UK and unloaded them, before subsequently collecting a new load in Newcastle that was transported to London, that Newcastle-London journey would be a cabotage leg.
Cabotage only accounts for a tiny fraction of all the movements of goods in Europe, between 1% and 2% of all UK national road freight volumes, according to figures from industry analyst Transport Intelligence.
Joanna Partridge
“The reports haven’t eased at all,” said Duncan Buchanan, director of policy at the RHA. “A number of measures have been put in place, the stepping up of training, stepping up of tests, but visually on the ground they are not having much effect.”
Firms in the logistics sector are also having to pay higher wages to entice new staff, or retain the ones they have, with reports of increased labour costs of up to 20% for some firms.
“We are seeing a lot of poaching of drivers, bigger companies with deeper pockets securing labour at higher rates,” Buchanan said.
Trade unions and industry bodies have expressed their displeasure at the government’s loosening of the cabotage rules, and the RHA expects the change “to suppress the wage increases being offered”.
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“Our belief is that the readjustment in wage levels that has been generally welcomed in terms of attracting more drivers is likely to be suppressed by the cabotage behaviour,” Buchanan said.
Britain has lost 53,000 HGV drivers over the past four years, according to new figures released by the ONS, which show the number of people filling those roles has slipped by 16% since its peak in 2016-17.
The majority of the losses – which includes a net fall of 42,000 UK nationals and 12,000 EU nationals – came during the pandemic.
Source: theguardian.com