When food prices go up, then a lot less of us will prosper
It has been an eventful few weeks for economic news. We have had a 'flash crash' in sterling and the exchange rate continues to hover around at very weak levels. We then had a flurry of excitement around a lack of Marmite on Tesco's shelves as the retailer squared up to Unilever over attempts by the supplier to increase prices.
While Tesco seems to have won that battle, ongoing currency weakness will start to impact on the prices of everything we import before much longer.
The big themes have been inflation and prosperity. While it is too early for sterling's collapse to be seen in the inflation figures, the most recent data (for September) showed that inflation increased to 1%, up from 0.6%. While inflation rates of 1% are not large by historical standards, this increase is significant and the expected direction of travel is for inflation rates to surpass the 2% target in 2017 as sterling's current malaise works its way through on import prices.
Driving this latest inflation increase was a rise in clothing and fuel prices. Food prices are not yet rising. That's a welcome finding from the inflation figures but it is surely only a matter of time before we do notice our weekly shopping increasing in price. As the chief executive of Tesco noted, "everybody should be very, very clear how damaging food inflation is to the economy, to retail businesses and manufacturing businesses and how lethal it could be for millions of people struggling to live from week to week".
Rising prices have the potential to hurt Northern Ireland consumers harder than other regions, as our expenditure on 'essential' or 'inescapable' costs such as housing, fuel and power absorbs a greater proportion of our weekly expenditure than other parts of the UK. Asda's income tracker, which measures discretionary income levels or family spending power sheds further light on how tight we might begin to feel the effects of price increases. Their income tracker suggests that we may not have much scope to absorb higher prices. Northern Ireland has the lowest levels of UK discretionary spend - £105 per week. This is about half the level of the UK average.
The Legatum Institute has published its 2016 UK Prosperity index that suggests Northern Ireland is the most prosperous devolved UK region.
There is an increasing bank of evidence to show that Northern Ireland is a happy place to be. This latest study assesses prosperity across a range of indicators: economic quality, business environment, education, health, safety and security, social capital and natural environment. While the report did find that Northern Ireland is the most prosperous of the devolved regions, it is not prosperity in a money sense, as Northern Ireland's relative performance on traditional wealth measures such as wage levels continues to disappoint.
The detail behind the Legatum Institute prosperity index for each of the indicators for our councils, provides insight into important issues for Belfast. Out of 389 UK council areas, Belfast ranks at 313. Within the factors assessed, the city ranks particularly poorly in economic quality (rank 355) which assesses variables such as unemployment, child poverty, job satisfaction and earnings.
For example, in Belfast, almost one in three children are considered as living in poverty and average wages are just over £20,000 per annum in the city. Of the seven factors that make up the prosperity index, three others see Belfast rank low - health, education and safety/security. On a positive note, Belfast's ranking for business environment (17th) is an impressive performance and reflects the progress that has been made on broadband access and speeds, business survival rates and access to road, rail and airports. It also supports other research which suggests that a greater proportion of companies in Belfast reach £1m turnover within their first three years than other UK regions.
In conclusion, while Northern Ireland may be ranked as relatively prosperous, based on a highly technical and detailed measure, the vast majority will take a look at how much it costs to fill a car with fuel, or how much the weekly shopping costs and make our own judgements on our prosperity. We are already paying more at the pumps and before long, food prices will increase.
At that point, I fear that no matter how the data is cut, fewer of us will be prospering.
*In next week's Economy Watch, we hear from Neil Gibson of the Northern Ireland economic policy centre @uu