The Clubcard conundrum
We learnt recently that the Tesco Clubcard behemoth may have become so big now that it is affecting UK inflation prices! As you all may know, the Office for National Statistics ‘ONS’ calculates UK inflation prices on a basket of goods, and these prices are sampled up and down the country, at various retailers at the point of scan. This not only allows statisticians to observe a high volume of prices but also enables them to better understand the different quantities of similar products being purchased. This helps them to weight items more appropriately within the overall index calculation.
The other benefit is that scanner data would take into account prices actually paid rather than the current system of tracking listed prices. This is important because of how the ONS thinks about inflation. Here is an extract from its Consumer Prices Indices Technical manual, the inflation bible: “Discounted and subsidised prices are only recorded if available to anyone with no conditions of sale, otherwise the non-discounted or unsubsidised price is recorded. Money-off coupons and loyalty cards are excluded.”
This makes some sense. As the ONS puts it: “Our basic collection practice is to only consider discounts if they are available to all”. Enter Clubcard, stage left. Tesco is Britain’s largest supermarket chain, and as everyone knows, nowadays having its loyalty card – the Clubcard – is more or less mandatory to access its best prices. According to Kantar, over the last three months Tesco accounts for 28% of all supermarket sales in the UK. Tesco claim that c.85% of customers use the Clubcard, which means that roughly a quarter of all UK supermarket sales happen at Clubcard prices! Clearly, these lower (on average by 25%) prices are massively important if one wants to measure a more realistic inflation rate.
Adjusting for paid prices on scanners (and thus accounting for Clubcard and other loyalty schemes) the ONS reckons that March's CPI print of 3.1% would have actually been as low as 2.8%! Clearly, overstating the official rate of inflation would have had wide-reaching consequences for public sentiment, as well as monetary and fiscal policy. We will leave you with one direct stat that shocked us the most:
The UK has c.£2.8tr of debt, of which 25% is inflation-linked. Overstating inflation by 30bps costs c.£2.1bn.
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