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Brewers pay price for premium pint

William Hanley

Financial Post, Weekly edition, Tuesday, May 26, 1998

The weather has cooled off in the past few days after treating Britons to almost two weeks of early summer, which had the nation's pub landlords pulling pints galore for the sweating masses after the wettest April in more than a century doused brewers' profits.

On a recent evening in London's trendy Covent Garden district, Market Eye, conducting valuable onsite research, recalled an occasion back in the mid-1970s when people would shake their heads in wonder and warn that the way things were going, a pint of beer would one day cost -- gasp! -- £1 ($2.35 at today's conversion).

After resignedly forking out more than £3 for a pint of lager on this particular fine evening of 1998, it was instructive to read a survey of how British prices have changed in the past quarter-century.

First, the average pint of beer cost 13 pence in 1973 and costs £2 today, central London notwithstanding. That is an incredible 1,440% increase and compares with a rise of 860% for gasoline and only 640% on the average house. And the brewers wonder why beer consumption is flat to falling in Britain.

Some other interesting quarter-century comparisons include the average wage, up 620%; the average work week, surprisingly up 10% to 44 hours; and short-term interest rates just about even at 7.5%.


Remembering stagflation: In 1973, Britain's inflation rate was 9% and heading higher, compared with the official year-over-year rate of 2.75% today. In fact, the "headline" rate has just risen to 4%, though most economists believe it is merely a statistical blip and that prices are basically under control.

Yet there are those -- some Bank of England officials among them -- who worry that prices are rising and more pressure is in the pipeline from average wage increases of 4.9%. Couple that with a recession in the manufacturing sector caused by high interest rates and a high pound, and a term not heard much since the 1970s comes to mind -- stagflation.

Stagflation describes a stagnant economy bedevilled by inflation. Britain's economy is still growing, but only in the red-hot service sector, which is being fuelled in turn by the City of London's white-hot financial and property sectors.

The Bank of England, which controls interest rates, has the almost impossible task of satisfying the needs of a service sector that demands higher rates and a manufacturing sector that demands lower ones.

Any further data showing more inflation pressures will certainly trigger a rate rise, with the central bank not willing to let inflation get out of hand, even if it means more pain for manufacturers and exporters.


Canada bashing: Not only has Canada's profile slipped in the City, some people here would like to see it slip further -- perhaps out of sight altogether.

Under a headline "Oust Canada," one newspaper columnist echoed remarks surrounding the G8 summit that we have heard several times over the past few of weeks in London: Why is Canada still in the exclusive club?

"The summit club was formed for the world's richest nations," the columnist whined. "And if Canada made it into the top seven once, it does not now."

The point is made that China and Brazil are richer than Canada in terms of gross national product. So, if China and Brazil are to be considered as members, perhaps Canada should be jettisoned to preserve the exclusivity of the club.

We do not believe the annual G7-plus-Boris summits do an awful lot besides providing some photo opportunities -- Bill Clinton quaffing a pint of beer at a pub got good play here. But we do believe Canada has played a larger role in the world than its economic output would suggest. It is generally a diplomatic level head in a world in need of level heads, a progressive society that is seen and respected as such.

We know size matters, but replacing Canada with China or Brazil is an idea whose time has not yet come.

Source: This information is provided by the Financial Post.

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