At the start of the year, we undertook an exercise to see whether supermarkets were exploiting the VAT hike to push through price increases.
It's a well-known technique, and was definitely used by a number of retailers both when VAT rose to 17.5% last time round, and when the rate was lowered to 15% before that.
On this occasion, however, we gave up! As we realised, with so many inflationary forces in play right now, it is next to impossible to link price hikes conclusively to VAT alone, so the read we were getting was too blurred to be meaningful.
Are we to assume, therefore, that retailers are absorbing the VAT, as the British Retail Consortium suggested this week? The nature of negotiations is such that a lot of buying takes place over a one, two or even three-year period, which makes the 4 January date largely arbitrary. But it's been interesting to see how relatively quiet retailers have been on talk of absorption.
The most notable exception was Tesco's VAT-based 'sale' towards the end of last month. But this struck me as just another tactical gesture, and the overall read from Tesco is as blurred as the picture on VAT: if it wants to run the business for cash, for example, why has it jumped back into the milk and banana price wars? Is Tesco desperate, or rudderless?
As I've observed before, VAT, along with commodities and raw material price hikes, and duty and fuel and the devaluation of sterling, has nothing to do with the temperature of the economy itself, which based on January sales has turned very chilly indeed. So it's to everyone's immense relief that economists on the Bank of England's Monetary Policy Committee have seen sense on interest rates this week.
So who's controlling the economy? It's not the government, and it's definitely not the supermarkets. It's the consumer, who is walking into the supermarket with a fixed sum to spend. And sticking to it.
It's a well-known technique, and was definitely used by a number of retailers both when VAT rose to 17.5% last time round, and when the rate was lowered to 15% before that.
On this occasion, however, we gave up! As we realised, with so many inflationary forces in play right now, it is next to impossible to link price hikes conclusively to VAT alone, so the read we were getting was too blurred to be meaningful.
Are we to assume, therefore, that retailers are absorbing the VAT, as the British Retail Consortium suggested this week? The nature of negotiations is such that a lot of buying takes place over a one, two or even three-year period, which makes the 4 January date largely arbitrary. But it's been interesting to see how relatively quiet retailers have been on talk of absorption.
The most notable exception was Tesco's VAT-based 'sale' towards the end of last month. But this struck me as just another tactical gesture, and the overall read from Tesco is as blurred as the picture on VAT: if it wants to run the business for cash, for example, why has it jumped back into the milk and banana price wars? Is Tesco desperate, or rudderless?
As I've observed before, VAT, along with commodities and raw material price hikes, and duty and fuel and the devaluation of sterling, has nothing to do with the temperature of the economy itself, which based on January sales has turned very chilly indeed. So it's to everyone's immense relief that economists on the Bank of England's Monetary Policy Committee have seen sense on interest rates this week.
So who's controlling the economy? It's not the government, and it's definitely not the supermarkets. It's the consumer, who is walking into the supermarket with a fixed sum to spend. And sticking to it.
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