Thursday, August 11, 2011

Reduced VAT and price changes

The July CPI is also the first the picks up the effect of the reduced VAT rate of 9% on the supply of certain goods and services. Details here.  We can use the CPI Detailed Sub-Indices to gauge some of the effect of the VAT reduction. The results are mixed.

VAT Price Changes

The price changes vary from a 4.1% drop in the price of newspapers (the full VAT reduction was passed on) to a 0.9% increase in the price of accommodation services.  Prices for cinema and hairdressing dropped by around 2%, with the cost of eating, canteens and takeaways all falling by less than 1%. 

Although the reduced rate of VAT is supposed to apply to cultural admittance and sports participation the price of both was unchanged in the month, though their prices are down more than 5% on the year.

All told, the categories listed here fell by 0.79% in the month and contributed to a monthly fall of less than 0.1% in the overall CPI.  Outside of newspapers it is hard to find significant evidence of the VAT reduction feeding through to price reductions.

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