Which products are most likely to rise in price because of the weak pound?
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28 November
12:50
November
2016

When the pound is weak, that makes imports more expensive. This affects nearly every product, however: almost all products have some kind of foreign input, either in ingredients or components or through foreign service providers such as airlines, banks or telecommunications companies that have set up in the UK. With Brexit, which is likely to mean less international integration, these inputs might go up in price anyway, but for the moment any movements in the exchange rate may have pass-through effects, which is to say changes in price.

"The textbook example is medication: if you need medication, you might not like the price rising by 10 per cent, but you suck it up because you need it."

Not all products will rise in price, however. A defining factor here is market power – the relative ability of a producer to set a price for its product in excess of costs. If you as a UK firm face a lot of competition from other local providers of the very same product, there’s no way to raise prices without losing sales and you just have to absorb the rise in costs. Where competition is less fierce, there’s more opportunity to pass on the costs to the distributor and consumer.

It is generally products with low profit margins that won’t rise in price. These are products with a high Price Elasticity of Demand (PED), which is a complicated way of saying that even small changes in price will see consumers running away, whereas products with a low PED will not be affected by price swings induced by exchange-rate changes and will still be bought by consumers.

Products that have a monopoly or near-monopoly have a low PED; that’s why Marmite’s producer asked for a higher price from Tesco. Luxury goods also have a low PED, but the textbook example is medication: if you need medication, you might not like the price rising by 10 per cent, but you suck it up because you need it.

Within food, you’ve got a high-end spectrum of bio and organic foods, which will often cost twice as much as non-bio but is purchased by relatively well-off people and will probably be less price-sensitive. Fresh produce such as meat and fruit are less likely to be imported in the first place so they’re less affected anyway – potatoes from the farmer next door aren’t affected by whatever happens to the external value of the pound sterling. But with low-cost products, the producers will just reduce their mark-up, which is to say their profit, rather than raise prices.

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