The festive feast is a costly affair
The festive feast is a costly affair
The holiday season is upon us, and for many, the centrepiece of Christmas festivities is a traditional roast dinner. However, this year's festive feast is expected to come at a higher cost with inflation driving higher prices. The cost of Christmas dinner for 2024, assuming a family of four, will be £32.57, a 6.5% increase on last year based on data from Kantar which analyses supermarket prices. On a more positive note, the price of sparkling wine is unchanged from 2023, so it’s not all bad news!
The higher cost of festive meal ingredients is due to a combination of factors, including higher energy and labour costs which has a general impact across production and distribution. The most expensive item, turkey, has increased 8.5%, perhaps as a result of the tightening in supply with only two scale producers remaining in the UK. Vegetable producers have experienced adverse weather conditions in the UK (and across Europe) which has impacted harvests. Potato prices have risen 16.3% and carrots by almost 15%. Another headwind might be supply chain disruption which seems to be a common theme.
Rising prices but living standards improving
For the UK consumer, the increased cost of Christmas dinner this year highlights that inflation remains very real. However, the broader measure of inflation (as captured by the headline UK inflation figure or Consumer Price Index (CPI)), is rising by 2.3% although food inflation as a whole has eased to 1.9% (down from 19% in 2023) according to Office of National Statistics (ONS). Notably, wages are currently rising (at a rate of 4.3%) which is above the headline rate of inflation. So, living standards are no longer being eroded but clearly there are certain products where costs are still seeing strong upward pressure.
A comparison of the headline rate of inflation, as measured by CPI, as compared to food inflation and wage inflation year on year (YoY)
Source: ONS, Bloomberg, Artorius
Inflation still elevated and above target
The broad picture in the UK is that CPI inflation has come down significantly since its peak. In October 2022, it reached 11.1%. It currently sits at 2.3%, where it has remained for the past two months after briefly falling below the Bank of England’s target of 2%. The picture in the US is not dissimilar, to the extent that inflation has fallen but remains above the Federal Reserve target, which is also 2%.
UK and US annual CPI inflation Year on Year (YoY)
Source: Artorius, Bloomberg
Interest rate cuts ahead?
The benign inflation backdrop enabled the European Central Bank to cut rates by 0.25 percentage points yesterday, and the US Federal Reserve (Fed) along with the Bank of England are expected to follow suit with a similar level of cuts next week. This is largely priced into current market expectations, albeit some commentators question the need for the Fed to cut interest rates based on the current strong economic backdrop in the US. We believe the 0.1% increase in the US unemployment rate in November, bringing it to 4.2%, will likely signal enough cooling in the labour market for the Fed to cut rates again. It is important to note that unlike the Bank of England, the Fed has a dual mandate to maximise employment as well as maintain price stability in relation to inflation.
What does this mean for markets
The bigger question for markets is how the interest rate cycle evolves from here, especially given the election of Donald Trump. Trump has already been very vocal on some of his policies, some of which have the potential to drive inflation higher. Are the policies rhetoric or reality? Only time will tell. Alongside the potential for higher inflation due to Trump’s policies (if enacted), economic growth expectations for 2024 and 2025 have been revised up. Markets currently expect three US interest rate cuts between now and the end of December 2025. This is markedly different from just prior to the US election on 5th November when it was between five and six.
Market expectation for the number of Federal Reserve interest rate cuts by December 2025
Source: Artorius, Bloomberg
Portfolio positioning maintained as we head into 2025
As we look towards 2025, we retain our portfolio positioning, remaining neutral on equities whilst maintaining our allocation to the US, albeit, we have recently switched away from the mega cap into the mid cap space due to valuation risk. We also continue to be underweight in fixed income, instead allocating to hedge funds with low volatility characteristics to provide diversification benefits.
Phil Carroll
Head of Alternatives
*Any feedback provided can be anonymous
Important Information
All expressions of opinion reflect the judgment of Artorius at 13th December 2024 and are subject to change, without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete; we do not accept any liability for any errors or omissions, nor for any actions taken based on its content. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Nothing in this document is intended to be, or should be construed as, regulated advice. Artorius provides this document in good faith and for information purposes only. Reliance should not be placed on the information contained within this document when taking individual investments or strategic decisions.
Artorius Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. Artorius is a trading name of Artorius Wealth Management Limited.
FP20241213001