‘You could be forgiven for thinking that a new cost-of-living crunch is upon us’

You can’t look at the news at the moment without seeing headlines day after day about the cost of things going up – or soon to go up.

Coffee and chocolate were among contributors to a surprise rise in inflation reported this week by the ONS, along with staples such as bread, eggs and meat. They contributed to inflation reaching 3% – the highest level in 10 months.

If your taste in drinks runs to something stronger than coffee, there was depressing news from Wetherspoon boss Sir Tim Martin. He told Sky News this week: “Overall, prices are certain to rise by April 1.”

Like retailers, he is factoring the impact of a heavier business costs burden as tax changes such as on national insurance kick in. And retailers themselves, pretty much across the board, have signalled the likelihood of higher prices as they adapt to the new cost environment.

The hard-pressed consumer also has higher energy bills to look forward to, thanks to a higher price cap. According to analysts at Cornwall Insight, the change is likely to eat up an extra £85 per year of household income.

You could be forgiven for thinking that a new cost-of-living crunch is upon us.

However, there are some big differences from those dark days when inflation seemed as steep as the slopes of the Himalayas.

The biggest is surely that wages are outpacing inflation, cushioning shoppers to some extent from the impact.

That may explain, at least in part, a couple of encouraging nuggets from the two consumer confidence surveys released this week. Each indicated improvements in people’s attitude towards personal spending.

The BRC-Opinium research found overall that sentiment about the economy had slid to a “new low”. But expectations about personal spending on retail specifically over the next three months showed an improvement, and personal spending overall was stable.

Separate data from GfK showed a similar divergence in views about the economy and personal spending. It found, in part thanks to the recent interest rate cut, “the biggest improvement is in how consumers see their personal finances for the coming year”.

The BRC did caution that its finding on retail spending attitudes may simply reveal “expectations of higher prices in the future”. However, whatever the reason, it looks as if the shopper’s mindset is disposed towards spending with retailers.

But even assuming that it reflects keenness to splash out a little more, rather than grudging reconciliation to the fact that prices are going up, the mood remains very fragile.

We may not quite be in for ‘son of the cost-of-living crisis’, but the memory of that punishing period remains strong – it wasn’t so long ago and can easily be stirred up.

While inflation has generally been easing, many items cost much more than they did a few years back. Despite rising wages, consumers will want to feel the effect over a prolonged period before they start breathing sighs of relief.

But industry observers and economists, such as those at Deloitte, are cautiously optimistic that as the year goes on, consumer spending will improve in the second half of the year.

For the time being the mood remains jittery. So while retailers must continue to make their voice heard on the real-life consequences of piling costs on their shoulders, they will also need to continue to demonstrate to customers, if they are to fully loosen their purse strings, that they are getting value for money.