The price is right: leisure markets and inflation

There has been much debate in 2007 about the need to keep a grip on inflation. Energy prices, in particular, have increased and while the media focus is usually on household bills, higher energy costs have a big impact on leisure industries (the costs, for example, of heating and lighting swimming pools, football stadiums, hotels).

But the big story on prices must still be the extraordinary historic change in the UK economy since the early 1990s: the movement to an economy with seemingly permanent low inflation (i.e. under 5% a year), accompanied by low unemployment and other general indicators of prosperity.

Apart from the economic benefits of low inflation, there are psychological effects. Anyone under the age of 20 can only have been aware, in their lives so far, of living under a Blair-style New Labour government (just as there was a Thatcher Generation), and the memory of a high-inflation economy is a distant one (for the over-30s). But the psychology of pricing is a complex matter and it is human nature to feel that ‘things are getting expensive’, even in an era of low inflation.

To put this in context, a look back at the past is worthwhile.

1960s prosperity and stability: RPI +3.5%

Taking the general, long-running Retail Price Index (RPI) as the measure of inflation, the annual average in the 1960s was +3.5% although the highest rate of the decade was +5.4% in 1969, heralding the decade of oil-price inflation and general economic crisis.

1970s oil crises: RPI +12.6%

Average inflation in the 1970s was +12.6% a year, which seems extraordinary enough to today’s RPI-watchers, but the annual peak for the decade of +24.2% in 1975 alone seems almost bizarre from the standpoint of 2007’s ‘worrying’ increase to over +3%.

1980s recession and Thatcherism: RPI +7.5%

The 1980s had an annual rate of +7.5% although this average was influenced by the +18% rate for the first year of the decade. Thatcherite economics brought the rate down to a low of 3.4% by 1986, at the expense of high unemployment, but the RPI crept up again to reach an unsustainable +9.5% in 1990.

1990s stability under Labour: RPI +3.7%

Apart from 1990, the 1990s were a decade of modest inflation - and economic stability - for which both outgoing Conservative and incoming Labour governments can take some of the credit.

Leisure prices in the 2000s

Inflation has averaged at just over +3% so far in the 2000s (2000-2007) but prices are polarising. The averaged-out RPI (+20% in that period) is now a hotch-potch of varying price trends across sectors of the economy. At one extreme, energy prices for the household were up 73%, whereas clothing and footwear prices actually declined by 17%. (Within clothing, Women's Outerwear is cheaper in 2007 than it was 20 years ago, thanks to globalised sourcing and an ultra-competitive High Street.)

Leisure goods is another official category that has suffered deflation, not inflation, since 2000: a 20% decline in prices averaged across items such as toys and electronic equipment. Leisure services, on the other hand, are 33% more expensive than in 2000. In the leisure market, this means it has become much cheaper to stay home than to go out for leisure activities, exacerbating the underlying social trend towards ‘cocooning’ in the home.

There is no better example of this than the beer market, where the 2000-2007 period saw a 6% decrease in take-home (or ‘off-trade’) prices, whereas a pint in a typical pub or bar costs 24% more. Hence the argument that it is supermarkets, not pubs, that have fuelled binge drinking. The pubs have had to charge higher prices for beer to pay for improvements to their premises, including the provisions for disabled access, stricter health and safety and smoking bans that have affected all leisure premises.

Beer is by no means the only market affected by the in-home option for leisure being cheaper than ‘going out’. Cinema prices have increased steadily – partly to pay for more attractive multiplexes – but there are now so many options for watching a movie cheaply at home (maybe on a home cinema set-up, helping recreate the cinema experience). Eating out is more popular than ever, but the option of entertaining in the home around a table stocked with home-delivered food or supermarket ready-meals is also enticing more consumers, and once again the pricing balance is in favour of the home, with household food prices up 15% since 2000, but restaurant meals up 23%.