Analyst claims wage rise will push up supermarket prices

Laith Khalaf
Hargreaves Lansdown senior analyst Laith Khalaf

Next year’s increase in the minimum wage will end the trend of falling prices in British supermarkets, according to a senior analyst at Hargreaves Lansdown.

Laith Khalaf said supermarkets were more likely to pass their increased staff costs on to customers than accept a reduction in profits.

He also said price rises stemming from the minimum wage increase would “gradually find their way into the UK’s inflation figures”.

His warning comes a day after Whitbread, the owner of Costa Coffee and Premier Inn, warned that it could increase its prices after the new “living wage” is introduced for over-25s.

The minimum wage for over-21s is currently £6.50 an hour, and set to increase to £6.70 on 1 October 2015. However, a new rate of £7.20 an hour for workers aged 25 and older will be introduced from April 2016.

The new rate has been marketed as a ‘National Living Wage’ by the UK government, though falls short of the amount recognised as a living wage by the Living Wage Foundation and the Scottish Government.

Mr Khalaf said: “Paying more for cappuccinos and onion rings could be the thin end of the wedge when it comes to the Living Wage pushing prices up, because Whitbread won’t be the only company facing these issues.

“Businesses across the hospitality and retail sectors in particular will somehow have to manage the additional cost, which means higher prices for customers, lower profits for shareholders, or some combination of the two.

“These companies are currently facing a double whammy of additional staff costs; not only do they have to stump up more for the Living Wage but they are also currently coping with the extra burden of pensions auto-enrolment too.

“All supermarkets will face increased staff costs as a result of the new Living Wage. Seeing as they are all in it together, they will probably pass the costs on, which would mean an end to plunging prices across the food aisles.”

He added: “We can also expect price rises stemming from the living wage to gradually find their way into the UK’s inflation figures, no doubt some more food for thought for the Bank of England when it comes to pulling the trigger on interest rate rises.”

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