“Shell-shocked chocolate lovers launch campaign after Cadbury downsize on Creme Eggs box.” That was the outraged headline in the Daily Mail this week. You can see why. Cadbury cut the number of Creme Eggs in a multipack from six to five, and recommended only a small price move to reflect the change. Most retailers are sticking with their £2 price tag. That’s not all: the firm has changed the chocolate used from Dairy Milk to “standard traditional Cadbury milk chocolate”.
You may not be bothered by this. Perhaps you think that if people paid more than £2 for nearly 1,000 calories of sugar the world would be a better place anyway. But think about it in terms of the direction of prices in the UK and it’s pretty interesting. Getting fewer eggs for the same price is the same as paying more for each egg (7% more under Cadbury’s recommended prices). So at first glance, you’d think this change is a symptom of inflation brewing in the UK.
However, you could also see it as a symptom of a disinflationary environment: if customers won’t tolerate price rises, then the only way for firms to boost profit margins – as shareholders expect them to – is to cut the underlying cost of the products they sell. Look at it like that, and nipping one Creme Egg out of a pack of six is a pretty easy win (however much empty-calorie lovers might whinge on Twitter).
So in this case the price rise might not be about inflation. It might be about the fact that our economy is on the edge of deflation and the consumer knows it. We look at what the very low inflation numbers out this week in our cover story. Right now, it looks good. It means the cost of your energy is falling – something that could make moving out of overpriced London easier. It means you can get one of the cheapest mortgages ever, if you have the right deposit. And it means that if you are holding a lot of your money in cash, you aren’t losing money in real terms.
“Cadbury’s Creme Eggs might be telling us we are on the edge of deflation”
However, while you should appreciate these happy effects of disinflation, you might also want to ask what is causing it. Globally, the answer is two things. The first is oversupply – driven at least partly by cheap credit giving an incentive for overinvestment in energy infrastructure. The second is falling demand from a slowing China.
Both suggest lousy global growth from here. Most people think that, even as China slows, a fast-growing US can hold the world economy together for a few years. But if most of the rises in employment and capital expenditure in America over the last few years have come from the energy sector, can it really keep growing as the oil price slides?
We’ll write more on this next week, but until then, look out for an interview with demographics and deflation expert Paul Hodges. His answer? A firm no.