Are we about to see a big ticket inflation eruption? SIMON LAMBERT on why it is likely to be expensive to treat ourselves in 2021
“I doubt anyone is crazy enough to book a vacation yet.”
That’s what personal finance expert Andrew Hagger said when our reporter George Nixon asked if he thought the lockdown savings phenomenon would continue.
His quote piqued my interest on two counts: first, in how dramatically the world has changed that booking a vacation is now seen as strange behavior and secondly because I recently saw a trip away.
Hot tub sales skyrocketed during the initial lockdown and spending on big tickets like this one is likely to get more expensive in 2021
I was supposed to go away with my wife tonight for a long weekend of snowboarding in Austria. An annual trip that does a lot to shake off the January blues.
We’re not going, of course, but the perennial optimist that I am, I seriously considered booking Easter flights to the mountains last week.
Despite the demand for airline and holiday bookings being extremely thin at the moment, the flights offered were neither plentiful nor cheap.
Airlines hacked their schedules when the coronavirus situation worsened in the fall and then narrowed it down again as the winter brought more bad news.
Given that it is currently illegal to leave the country for holidays – and will remain indefinitely – there is little reason for them to add additional flights.
Instead, I suspect that if I can take the family to the mountains for a snowboard and ski trip that meets Covid at the end of the season, I will pay for the fun.
And I have a hunch that the same will be true for all the expensive expenses I make this year as soon as the lockdown rises – and we’ll see an onslaught of big ticket inflation.
Officially, inflation in the UK is at a low level, with the most recent ONS data showing CPI inflation at 0.3 percent in November.
This is due to the deflationary effects of lockdowns to quell the coronavirus pandemic.
How quickly inflation will pick up again is a matter of debate. But even if vaccines are rolled out as quickly as hoped and restrictions are relaxed, we won’t go back to normal for a long time and the hangover won’t be easily shifted.
However, the ONS ‘goods-based approach to keeping the cost of living in check is just one general measure of how inflationary living is.
It has long been pointed out that those in certain parts of society, of different ages and with different lifestyles, will feel inflation differently, and as you go along, each of us has our own personal inflation rate.
The same goes for our spending categories: there’s the rise in our essential cost of living, the change in our normal spending, and the inflation we feel when we splash on things the right way, like vacations, cars, home improvements, or major tickets treats.
And I have a terrible feeling that just as we can treat ourselves again, this will become significantly more expensive.
Many people are eager to start enjoying life again when they can – and some have amassed substantial piggy banks to do just that
That sounds perverse when you consider the UK’s bigger economic picture and rapidly rising job losses, but much of the country has continued to earn, some have amassed significant ‘lockdown savings’ by seeing their spending cut, and many people are very eager to enjoy life again when they can.
The pandemic has affected both demand and supply: factories were closed and then had to run at a lower capacity, logistics were disrupted and companies that are open have to divert customers and staff and thus can serve fewer people.
Now that demand is proving to be more robust than many thought there would have been a reduction in inventory, and from building supplies to electric cars and laptops, it’s harder to get hold of a ton of things.
That allows suppliers and retailers to keep prices firm and for the things that people really want, they can drive up prices.
We’ve already seen early signs of this major ticket inflation: in the surprising boom in hot tub sales, the surge in stays that prevented you from booking a reasonably priced summer vacation after the end of July, and the sky-high price of summer flights in the UK. short window in which people could get away during the school holidays.
However, these were just outbreaks of major ticket inflation in specific places. If the vaccination plan works – which I sincerely hope – and we get our lives back, expect it to strike across the board.
People want to indulge themselves, and 2020 has taught them to seize the moment while they can.
Supply and demand says that if you want to do the same as others in 2021, it will likely become more expensive.