Coutts & Co has launched one of the most comprehensive studies into the spending habits of the wealthy in the UK and reveals that in the past year, inflation for premium goods and services consumed by high net worth individuals (HNWI) in the UK reached 9.5%, four and a half times the 2.1% inflation rate indicated by the CPI over the same period.
The Coutts Wealth Inflation Index (CWII) is based on the spending habits of the holders of Coutts’ exclusive World Card, covering high income households whose expenditure is likely to be excluded from the widely accepted CPI and RPI inflation trackers. The aim of the study is to produce the most robust measure of inflation pertaining to high net worth individuals and the luxury goods and services market by conducting in-depth research into what the wealthy actually buy on an annual basis.
Coutts began by examining the premium products and services purchased by the wealthy based upon expenditure of World Card holders. They price matched these goods over 12 months to ascertain changes in prices over the period. Over 600 million of expenditure was then matched by Coutts to the traditional CPI categories, such as food and drink, or clothing and footwear. These categories were then reweighted to reflect the average value of expenditure by HNWIs in each category.
The number of wealthy individuals in the UK has risen significantly over the last few years with around 112,400 people in the UK holding onshore liquid assets in excess of 1m, a figure predicted to rise by almost 13% by 2011. On average, income rises quicker for HNWIs than that of average UK incomes. HNWIs spend a significant proportion of their income on ‘luxury’ goods which come at a premium, with supply of such products and services of this type being limited. Typically these costs are rising faster than prices of more freely available products and services.
“The initial findings from the Coutts Wealth Inflation Index clearly demonstrate that High Net Worth Individuals are experiencing a higher rate of personal inflation than that of the general UK population. With annual expenditure rising at such high rates among wealthy households, they should be aware of the impact this can have. We have been able to create this index thanks to our extensive history of working with high net worth individuals. This real understanding of client spending and how inflation can impact them helps us to provide advice to our clients that is relevant,” says Perry Littleboy, head of Marketing and Business Development at Coutts & Co.