Living wage looks set to drive inflation and hurt share prices

8th September 2015


The new National Living Wage looks set to drive inflation and could hurt share price performance says Hargreaves Lansdown.

Hargreaves Lansdown senior analyst Laith Khalaf has suggested that many supermarkets may raise prices across the board but that Home Retail Group, owner of Argos, may find it more difficult to compete given its competitors such as Amazon will be much less vulnerable to increases in the statutory minimum wage.

Khalaf notes brewing and hospitality group Whitbread’s warning that the living wage requirement will probably mean they have to put some of their prices up, which could mean customers paying more at Costa Coffee, Beefeater Grill and Premier Inns, three of the chains they operate.

He says the announcement come hot on the heels of a Manpower survey which concluded that the National Living Wage, due to be introduced next April, which is already sending shockwaves through the UK labour market.

Laith Khalaf adds: “Paying more for cappuccinos and onion rings could be the thin end of the wedge when it comes to the Living Wage pushing prices up, because Whitbread won’t be the only company facing these issues.  Businesses across the hospitality and retail sectors in particular will somehow have to manage the additional cost, which means higher prices for customers, lower profits for shareholders, or some combination of the two. These companies are currently facing a double whammy of additional staff costs; not only do they have to stump up more for the Living Wage but they are also currently coping with the extra burden of pensions auto-enrolment too.”

“All supermarkets will face increased staff costs as a result of the new Living Wage. Seeing as they are all in it together, they will probably pass the costs on, which would mean an end to plunging prices across the food aisles. Home Retail Group, owner of Argos, will find costs more difficult to pass on, because its competitors, the likes of Amazon and eBay, aren’t going to be as heavily affected by UK employment legislation. With already wafer thin margins, the Living Wage could therefore prove to be a major headache for the retailer.”

“We can also expect price rises stemming from the living wage to gradually find their way into the UK’s inflation figures, no doubt some more food for thought for the Bank of England when it comes to pulling the trigger on interest rate rises.’


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