What Cadbury Creme Eggs tell us about disinflation

The Creme Egg Index might be telling us we are on the edge of deflation. Merryn Somerset Webb explains why.

"Shell-shocked chocolate lovers launch campaign after Cadbury downsize on Creme Eggs box." That was the outraged headline in the Daily Mail this week. You can see why. Cadbury cut the number of Creme Eggs in a multipack from six to five, and recommended only a small price move to reflect the change. Most retailers are sticking with their £2 price tag. That's not all: the firm has changed the chocolate used from Dairy Milk to "standard traditional Cadbury milk chocolate".

You may not be bothered by this. Perhaps you think that if people paid more than £2 for nearly 1,000 calories of sugar the world would be a better place anyway. But think about it in terms of the direction of prices in the UK and it's pretty interesting. Getting fewer eggs for the same price is the same as paying more for each egg (7% more under Cadbury's recommended prices). So at first glance, you'd think this change is a symptom of inflation brewing in the UK.

However, you could also see it as a symptom of a disinflationary environment: if customers won't tolerate price rises, then the only way for firms to boost profit margins as shareholders expect them to is to cut the underlying cost of the products they sell. Look at it like that, and nipping one Creme Egg out of a pack of six is a pretty easy win (however much empty-calorie lovers might whinge on Twitter).

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"Cadbury's CremeEggs might be tellingus we are on the edgeof deflation"

Both suggest lousy global growth from here. Most people think that, even as China slows, a fast-growing US can hold the world economy together for a few years. But if most of the rises in employment and capital expenditure in America over the last few years have come from the energy sector, can it really keep growing as the oil price slides?

We'll write more on this next week, but until then, look out for an interviewwith demographics and deflation expert Paul Hodges. His answer? A firm no.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.