Stonehage Affluent Luxury Living Index (SALLI) shows the cost of being rich in London is falling

The Stonehage Group, a leading multi-family office advising Ultra High Net Worth (UHNW) individuals and international families, today announced that prices of typical luxury goods and services for the UHNW based in London decreased by 1.6% in the 12 month

This decrease, measured by Stonehage’s Affluent Luxury Living Index (SALLI), compares to an average inflation rate of 3.0%, measured by the UK Consumer Price Index (CPI) over the same period.

Key findings:

• SALLI 2012 reinforces findings that UHNW inflation is much more volatile than CPI, tending to exceed standard inflation in good times and significantly fall short in times of downturn.

• Among the biggest drivers of the decrease in prices this year is the drop in the consumables category, where costs fell by 14.5%, supported strongly by a 10% devaluation of the Euro against the Pound over the period under review. The trend was further encouraged by softening demand, as concerns surrounding the troubled eurozone and Greek exit continue to fuel consumer uncertainty. Prices of luxury food such as caviar, which fell by about 35% due to increasingly intensive farming methods, were significant, whilst fine wine has fallen by 19% due to a decrease in demand from China, which impacted wine prices globally.

• In the housing and family category, costs of rented property (in Kensington and Chelsea) showed an increase of nearly 5% continuing a trend of strong demand for prime rental property in central London.

• The investments of passion category fell by 0.4%, with the decrease in prices offset by a 10% rise in the cost of luxury watches, due to increased demand in China, Asia and the Middle East.

• The culture and entertainment category was up 0.8%. This was primarily due to an increase in Opera tickets of approximately 5%. This confirms the attraction of London as both a tourist and cultural centre.

• The category for sports and recreation fell by an average 4.5%, with Wimbledon corporate hospitality packages falling by just over 20%. The deflation illustrates that the wealthy are expected to focus on the London Olympics as the highlight of this summer’s sport, as well as corporate caution in terms of entertainment budgets together with issues around the recently introduced Bribery Act.

• Travel costs fell by 3.6%, as the cost of private aviation fell due to the depreciation of the Euro which also supported European hotel price deflation of 4%. However, premium class commercial flights priced in Pounds saw a linear correlation with the increase in jet fuel costs, appreciating in excess of 5%.

Ronnie Armist, Executive Director at Stonehage Investment Partners, commented: “At Stonehage Investment Partners, we use SALLI to help us analyse the true costs of living for our clients. The decrease in SALLI shows that consumer confidence has fallen, following a period of intense upheaval in the eurozone.

This trend has been further supported by the strength of the Pound against the Euro. It’s therefore become cheaper for the wealthy to buy the products and services on which they spend their discretionary income. London continues to be a hugely popular world city, for non-business as much as business purposes. This is reflected in the rise in the culture and entertainment category, even with competition from events such as the Olympic games, which does not form part of our basket.”

Stonehage Affluent Luxury Living Index (SALLI) London, a proxy for price inflation experienced by London-based HNW and UHNW families, was first published in 2007 in order to track the prices of a basket of luxury goods and services regularly purchased by UHNW clients. The basket forms the basis of the index and consists of approximately 50 goods and services on a ‘per use’ weighted average basis. The basket includes items such as private education, central London rental costs for a family property, a day’s grouse shooting and fine wine and cigars, based on Stonehage’s knowledge and experience of the spending patterns of London-based UHNW families. Prices in the index are the recommended retail prices (incl. VAT) and SALLI accounts for the frequency of purchase of each item over one year. Prices were recorded between 2002 and 2012.

The index methodology was initially reviewed by Professor Geoffrey Wood of the Cass Business School.

To view the full SALLI 2012 report please visit: http://www.stonehage.com/