While all around there was hope, the CBI with its distributive trades index stayed glum. In April last year, when the British Retail Consortium said the month saw an impressive 6.8 percent growth on the year before, the CBI index only just managed to rise above zero, hitting a score of just 2 points.
Back in October, when the BRC had year on year retail sales growing at 2.6 percent, the CBI index went negative.
And throughout much of this decade, the CBI index has consistently shown a more negative slant on the economy of the High Street than other reports. It was as if the CBI had become the bears of retail, prophesizing doom, when others predicted a mild slowdown, and predicting tiny improvements when others were glowing with optimism.
But for January, the CBI index hit a score of Plus 30. This follows a reading in December, of plus 25, itself impressive. The index is defined by asking retailers whether sales are up or down on the same period last year, and subtracting the percentage number who said down away from the percentage number who said up.
The January score seems to indicate that the December jump in sales was no blip, rather a sign of new vigour. The CBI index for November languished with a score of minus nine.
Big hits were the grocers, with this sector seeing a score of plus 63, but owners of specialist food outlets like delicatessens were not so happy. Sales were up, with the sector seeing a reading of plus 27, but then a year ago, this was one of the few stars of the retail scene. In January 2006, the difference between the number of specialist food outlets reporting a rise in sales versus those reporting a fall, was a staggering 88.
Other successes were seen in footwear leather goods (plus 67), durable household goods ( plus 62) and furniture carpets (plus 49). Perhaps as a result of mild weather during the survey, clothes sales were about the same as a year ago (a balance of plus two).
But despite this success, the Chairman of the CBI’s DTS Panel, not to mention Executive Director of Asda, John Longworth, said: “December’s strong showing was driven by some very heavy discounting and it is likely January will be the same.” And: “While shoppers have an appetite for the high street at the moment, and the prospects for February are promising, we have yet to see the full impact of recent interest rate rises on their resilience.”
Back in December, many analysts were predicting a tough Christmas and January, and yet all the evidence seems to suggest that they got it wrong, quite spectacularly so, in some cases.
But, perhaps we should turn our attention for a moment to inflation. There has been plenty of evidence to suggest that many of the winners were stores who did not discount so heavily. John Lewis, Marks and Spencer, even Tesco found its premium ranges to be big hits. This means inflationary pressures are mounting.
The perceived wisdom seems to be that inflation will fall back later this year (see story below from the National Institute of Economic and Social Research), but are these reports really taking into account the full impact of a change in the popularity of price discounting?
Premium goods tend to be less price sensitive, or to put it into economic speak, demand is relatively price inelastic. So as demand rises, retailers will find it easier to up prices.
Back in the ’80s it seemed that the idea inflation was caused by cost pressures was dead. Inflation, it appeared, was down to demand. And right now, we are seeing the very factors that caused inflation in the past rear their ugly head.
Perceived wisdom might be right, and this time it may be different, and despite high demand, inflation will fall, but the history books are full of examples of experts making the wrong call, and right now we could be witnessing another example in the making.
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