Thursday briefing: What the end of the McDonald’s 99p cheeseburger tells us about the economy

Good morning. It is the year 6000. Humanity has abandoned its bodily form and lives on a USB stick. Sentient bipedal rats roam the earth on hoverboards. Great lava pools have replaced the oceans, and nobody knows what a tree is. Somewhere in what remains of the UK, something looks at a menu, ponders for a moment, and orders a McDonald’s cheeseburger for 99p.

Or so you might have expected until yesterday, when the fast food giant announced a change to one of those prices that seemed written in stone: after 14 years, the era of the sub-£1 cheeseburger is over. The company said it had protected consumers from increased costs for as long as it could, and the price had to go up to £1.19. There will be increases to a range of other items like McFlurrys, fries, and large meals – but it’s the totemic burger that sticks in your head.

Energy prices are going to be the biggest pressure for most households: only yesterday, it was forecast that bills will reach £3,850 per year by Christmas. But the way that this price change resonates, and how it compares with other increases in different parts of the economy, tells us some important things about another aspect of how the cost of living crisis is developing. For today’s newsletter, I’ve spoken with economist and author Duncan Weldon about handbags, video games, and the meaning of a 99p cheeseburger. Here are the headlines.

Five big stories

  1. Strikes | Unions warned the UK could face a general strike this year as rail workers voted for fresh action. The vote for further transport strikes came as Keir Starmer sacked shadow transport minister Sam Tarry who conducted broadcast interviews alongside RMT workers on a picket.

  2. US politics | Joe Manchin, the US Democratic senator infamous for thwarting Joe Biden’s agenda, made a surprise U-turn and said he would back a flagship bill to pay down the national debt, lower healthcare costs and address the climate crisis. Manchin’s vote could be decisive in the 50-50 split senate.

  3. Abortion | Liz Truss is facing questions over why commitments to abortion rights were removed from a multi-nation statement on gender equality. Denmark and Norway have protested “the substantive changes to the statement” after they signed the original, which was agreed at a UK-based conference.

  4. Iran | British-Iranian environmentalist Morad Tahbaz, who was arrested in 2018 by Iranian authorities on securities charges, has been released on an electronic tag, according to the Foreign Office. The news follows the release of Nazanin Zaghari-Ratcliffe and Anoosheh Ashoori, who returned to the UK in March.

  5. Science | James Lovelock, the creator of the Gaia hypothesis, has died on his 103rd birthday. The climate scientist died at home on Tuesday surrounded by loved ones, his family said.

In depth: Inflation variation from Chanel to Asda

A McDonald’s cheeseburger. Photograph: Michael Neelon(misc)/Alamy

When we talk about inflation, it can sound like an uncontrollable, mysterious abstraction. In one sense, that’s true: there’s no ambassador for inflation to hold talks with, and no button to switch it off.

In another very blunt way, though, it isn’t true: almost any time an item’s price goes up, that’s because somebody, somewhere, has decided to charge more for it. The McDonald’s hamburger hasn’t stayed 99p for 14 years because its recipe happened to feature the only combination of ingredients where costs haven’t changed: it’s stayed there because McDonald’s has decided it’s worth holding the price down and absorbing those costs itself.

Duncan Weldon, author of a new history of the British economy, Two Hundred Years of Muddling Through, and the Value Added newsletter on Substack, said that the price change “will not have been an easy decision for them to make at all. [McDonald’s] know their customers well, and they will have had concern about the impact of moving the prices up. And you never know which are the things that are going to become the examples that get picked up by, for example, the Guardian morning email.” That’s influence for you, eh.

From luxury goods to fast food, the tipping points for price hikes will come at very different stages.


Chanel small classic handbag

2019 £3,810
Today £6,510

Well, look, this might be an area you have to make a cutback. “On any sort of luxury good, the producer has an awful lot of pricing power,” said Weldon. “All of their costs will have soared: price inflation for producers is running well ahead of consumer price inflation. Lots of firms have been taking a margin hit. But they don’t have the same issue with passing that on to the consumer.”

That’s because, obviously, if you want a Chanel bag, you want a Chanel bag, and you’re unlikely to pick a Primark one instead. Then there’s the fact that, at a certain level, the price becomes a reassuring status symbol in itself (just like the fact that you’re limited to buying one a year). The demand is ‘inelastic’ – that is, people who think nothing of a £3,800 handbag are probably pretty comfortable with a £6,500 one as well.

This is useful, in part, as an example of what simply isn’t possible in other parts of the economy. “If you’re selling mass market items competing with lots of others, you don’t have the luxury of simply passing all the costs on without thinking about it,” Weldon said.


Video games

Goldeneye, Nintendo 64, 1997 Around £60
Fifa 22, XBox One, 2022 £59.99

Those of us of a certain age and level of nerdery may remember £60 console titles in the 90s; despite vastly increased levels of complexity and corresponding budgets, so-called ‘AAA’ games are about the same price today. If they had risen with inflation, they’d be around £120 – so it’s a real-terms price cut of about 50%. But that era may be ending.

“Until this bout of inflation, the story in advanced economies has been that the price of goods have effectively been falling, and services have become a bit more expensive,” Weldon said. “That’s a story of technological change, of outsourcing manufacturing and deeper globalisation. But with a severe supply chain crunch, that’s reversing.”

As the pandemic started to bite at the end of 2020, games manufacturers in the US began what they viewed as a long overdue effort to raise the typical price from $60 to $70, while new and confusing revenue sources within games like “loot boxes” and expansion packs are pushing spending up in a way that doesn’t appear in the retail price.

The pandemic is a huge factor on the demand side, too. “We saw this big shift in consumer spending patterns,” Weldon said. “Your typical consumer is spending a lot less than they’re used to on services, the pub or a haircut, and a lot more on goods. And all of that pushed prices up as well.”


Lurpak slightly salted spreadable 500g

Average UK supermarket price 2021 £3.53
Average UK supermarket price 2022 £4.87

You might have seen stories a few weeks ago about this 38% increase, according to research firm Assosia; the grabbier detail came in a social media post showing 750g tubs for £6 in Asda with security tags on. It isn’t just about butter, obviously: most staples have gone up in supermarkets, which have extremely low margins within which to absorb increases in costs.

At the same time, said Weldon, it’s important to note that “Britain has had the cheapest food in western Europe for a long time. But now [retailers] are faced with a situation where you can’t squeeze the production costs any more, or your suppliers will go out of business.”

You won’t ever see a press release announcing an item’s price rise at Tesco or Sainsbury’s: their prices change constantly, with “huge amounts of data on the impact and confidence about how it will affect demand.” Supermarkets will prioritise keeping certain high profile staples – like a pint of milk or a loaf of bread – as low as they possibly can. “They don’t like to put prices up for things which consumers notice,” Weldon said.


McDonald’s cheeseburger

2008 – July 25 2022 99p
July 26 2022 £1.19

“Behavioural economists think about anchoring points on prices,” said Weldon – and 99p is a very important one. “In the same way, it was the Pret 99p filter coffee until recently.” And, obviously, even when inflation was around 2%, McDonald’s was effectively cutting the price each year.

In the past, that’s been worthwhile as a branding tool and loss leader to get customers through the door even if Big Tasty meals are creeping up. “They will have wanted to keep this down for as long as they could,” Weldon said. Painful though it is for the company, it has another future benefit: the next increases of a few pennies will be easier to make without putting people off.

Just as there was never anything altruistic about the 99p price, there’s nothing particularly wicked about £1.19, either. “It’s important to step back, and say why is this happening?” Weldon said. “It’s happening because we had a pandemic, global supply chains are broken, war in Europe is making energy and food more expensive, and so the country is poorer. It’s not a story of greedy corporates’ decisions, or greedy workers demanding more, or stupid bankers printing too much money. It’s because real things have happened.”

“The policy debate should be about how we allocate that pain best among firms, households, different people,” Weldon said. “And instead the political debate we have is how do we make it go away.”

What else we’ve been reading

  • Oliver Milman follows the Gen-Z environmental activists who’ve turned their ire to gas guzzling SUVs. Armed with lentils, the young vigilantes scurry through the streets of New York, deflating tires to inconvenience and shame owners. Nimo

  • Even when women’s football generates delirious joy, it is still assessed in terms of how close it’s getting to the men’s game. Jen Offord argues that the differences – some of them, anyway – are part of what makes it so great. Archie

  • Maeve Higgins looks at why libraries are the new cultural battleground in the US. Higgins examines why the far right have waged a war on a beloved public institution and why it’s so important to fight back. Nimo

  • The fact that new prequels to the Lord of the Rings and Game of Thrones are coming out as miniseries within weeks of each other makes viewing them as rivals inevitable. Steve Rose’s interesting read on the genesis of them both works through all that enjoyably – but also suggests it might not be a zero-sum game. Archie

  • When Nicky Campbell revealed the abuse he suffered at his public school, he did so in an interview with Alex Renton. Amelia Hill speaks to the podcaster about the impact of his show about abuse in private schools – and the “vicious” lengths some go to to avoid being accountable. Archie

Sport

Football | England will play Germany in the Euro 22 final after Alexandra Popp scored twice to take her side to a 2-1 victory over France.

Athletics | Dina Asher-Smith has pulled out of the Commonwealth Games after injuring her hamstring. The opening ceremony takes place tonight and will be comparable with the London 2012 Olympics ceremony, its artistic director said.

Football | Manchester United completed the signing of Argentina defender Lisandro Martínez for £48.3m, rising to £56.7m with add-ons. “It’s an honour to join this great football club,” said Martínez.

The front pages

Guardian front page, 28 July 2022. Photograph: Guardian

Our Guardian print edition today leads with “Unions issue general strike threat as rail crisis grows”. The i has “UK general strike threat if Truss takes on unions”. The Express and Mirror today they find a bit of common ground. The former says “Fears energy bills will hit shocking £3,850 a year”; the latter “Shocking: energy bills could hit £500 for ONE MONTH this winter” (one blames Putin, the other implicates the Tories – guess which is which). The Metro says we’ve had the “Driest July since 1911” so far and it may yet be the driest on record. “Victory for free speech … and women” – that’s the Daily Mail’s lead about a barrister who successfully sued her chambers for discrimination over her views on gender and biological sex. The barrister, Allison Bailey, and JK Rowling are shown on the front of the Times, while its lead story is “‘Talk to our enemies or run risk of nuclear war’”. That is the counsel of Sir Stephen Lovegrove, the UK’s national security adviser, about China. The Telegraph has that one as “Accidental nuclear war with China a ‘growing risk’”. “Fed lifts rates by 0.75 points for second month in a row” – that’s the Financial Times on the “battle to tame inflation”. The Sun says “Tuchel taps up a Brazilian” which is about the football boss’s love life.

Today in Focus

Photograph: Claudio Peri/EPA

Is Italy heading for its first far-right leader since Mussolini?

The sudden downfall of Mario Draghi’s government could clear the way for Italy’s first far-right government since the second world war, says Rome correspondent Angela Giuffrida

Cartoon of the day | Steve Bell

Steve Bell’s cartoon. Illustration: Steve Bell/The Guardian

The Upside

A bit of good news to remind you that the world’s not all bad

Iain Braid for A Moment That Changed Me Pictured in his back garden in Lincolnshire, 2018 Photograph: Supplied image

An MS diagnosis railroaded Iain Braid’s life. He couldn’t work and had to give up his driving licence, leaving him in a “chaotic” place. At just 50, Braid didn’t know what the next phase of his life looked like.

That was until his wife found about Transported, a Lincolnshire organisation that runs community art projects. All kinds of people attend and try to forge new hobbies at the workshops, for Braid that new hobby was woodcarving. One session turned to six, which turned into a passion project. After some time Braid decided to become a project assistant at Transported, so he could work on projects throughout the year and help other new artists.

Sign up here for a weekly roundup of The Upside, sent to you every Sunday

Bored at work?

And finally, the Guardian’s crosswords to keep you entertained throughout the day – with plenty more on the Guardian’s Puzzles app for iOS and Android. Until tomorrow.

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