Brexit bites back as Peugeot joins Dell in lifting prices

[PARIS] British consumers are starting to bear the costs of Brexit, with companies raising prices of everything from cars to carpets to counter a plunge in the pound caused by the UK's vote to leave the European Union.

French carmaker PSA Group lifted prices of its Peugeot, Citroen and DS vehicles by an average of 2 per cent on Aug 1, a spokeswoman said Tuesday.

The increases make up for part of the pound's 10 per cent drop against the euro and its 13 per cent fall versus the dollar since the June 23 referendum.

"We took a reasoned measure given the currency fluctuations," the spokeswoman said, confirming an earlier report that its Peugeot 308 hatchback rose by 2.8 per cent, or £435 (S$761).

While some companies have stood firm on prices, worried about losing market share in competitive UK businesses like groceries, others are moving quickly to pass along the effects of the weaker pound.

The increases underline forecasts for an uptick in inflation after the country flirted with deflation last year. Alan Clarke, an economist at Scotiabank Europe Plc, said it was "unusual" for companies to blame the Brexit referendum for cost increases they passed along so quickly.

Typically there's a six- to nine-month lag between big moves in exchange rates and shifts in consumer prices, he said.

"I think you'll have some opportunistic companies," he said. "Whether people actually buy those products or they get discounted at sale time, we'll have to wait and see."

Some industries, like tourism, are more sensitive to exchange rates than others, like electronics. While British travellers hitting the beaches of Spain or Italy need to convert pounds to euros, pricing of consumer gadgets is more complicated.

In the economic recovery that followed the 2009-10 downturn in the UK, the pound rose along with prices of devices like portable music players because of increased demand, Mr Clarke said.

Since the referendum, PC maker Asustek Computer Inc has said it plans to raise UK prices by 9 per cent in October, while Dell Inc said in a statement that the weak pound "will have a direct impact on the price we sell some of our products to our UK enterprise customers".

Smartphone provider OnePlus has lifted the price of its flagship phone to £329 from £309. HTC Corp marked up its Vive virtual reality headset by £70, to £759, from Aug 1.

Headlam Group Plc, a UK distributor of floor coverings, has said it will raise prices, while US-based carpet provider Mohawk Industries Inc said in an earnings call that it plans to adjust its European pricing "relative to where the pound has been."

Svenska Cellulosa AB, the maker of Velvet tissues and Cushelle toilet paper, has said it's considering increases for diapers, liners and incontinence pads.

The fall in the pound is one of several factors that could lift consumers' bills. Depending on the outcome of the UK's negotiations to leave the EU, the country might reimpose tariffs on imported goods. UK employers also face increases in the minimum wage.

UK consumer prices climbed an annual 0.5 per cent in June. The Bank of England forecasts that inflation will accelerate through this year and next, hitting its 2 per cent target at the end of 2017. The last time it was at that level was in December 2013.

Fierce competition among supermarkets has kept food bills in check in recent years. Grocer Wm Morrison Supermarkets Plc, which competes with bigger chains like Tesco Plc and J Sainsbury Plc as well as discounters such as Aldi and Lidl, last week said it was cutting prices of 1,045 items by an average of 18 per cent.

But the average cost of a weekly trip to the supermarket rose 1 per cent in July, according to price-comparison website mysupermarket.co.uk. Pasta was up 10 per cent.

Companies that manufacture or source many of their goods in the UK are insulated from the pound's decline. That helps carmakers like Nissan Motor Co, which has a plant in Sunderland, England, that also supplies other European markets.

UK auto sales fell in June and grew only 0.1 per cent in July as uncertainty over Brexit mounted. Parts provider Continental AG expects UK sales to fall in the second half of the year, but it raised prices in the UK on Aug 1 because of the decline in the pound, chief financial officer Wolfgang Schaefer said last week.

PSA imports all the vehicles it sells in the UK, where it had an 8.5 per cent market share last year. Several other European carmakers, including Peugeot's French rival Renault SA, have said they have no plans to lift prices at this stage.

Ian Fletcher, a London-based analyst at IHS Automotive, said "it is pretty much inevitable" that others will follow PSA.

"The UK is a very important market for European auto makers," he said in a phone interview.

"We're going to see pressure passed on to consumers," because companies are not prepared to cut their profit margins.

BLOOMBERG