Today is inflation day in the UK as we progress through 2015 with a lower level of inflation than we have been used too in the credit crunch era. However there is something stirring in the depths of UK inflation measurement.
The consultation, which will run for three months, will provide all users with the opportunity to express their views on the issues raised by Mr Johnson in his review.
Yes we are getting the opportunity to express our views again and rather like Greece discovered only yesterday and Ireland discovered before it looks as though we are going to get more and more consultations until we give the “correct” answer. Back in the days of the Retail Price Index (RPI) consultation there was an opportunity for interested parties to cast a vote which led to a landslide in favour of keeping the RPI. I covered this back in January 2013 when I was at Mindful Money.
Sadly even a landslide victory does not deter the establishment as this from the latest consultation from the UK Statistics Authority indicates.
The Authority holds a clear position on the RPI, which it has set out in a range of statements since 2013. It considers that the methods used to produce the RPI are not consistent with international best practice and, consequently, that the series is not deserving of National Statistics accreditation.
In spite of the fact that it won the consultation, in official terms it lost because that was always the plan! Of course losing National Statistics accreditation may be seen as a badge of honour as sadly it is the National Statistics process which is by now discredited.
I was reminded of this one more time about this yesterday as a public meeting at the Royal Statistical Society (RSS) had general agreement that the RPI is “trusted” in the main. What was not said was the implication that the official CPI measure is not. Indeed the planned new main inflation measure called CPIH (H= Owner Occupied Housing Costs) which the Paul Johnson review recommended only recently has been both an embarrassment and a shambles. It remains without a National Statistics accreditation because even our establishment have so far been unable to put enough lipstick in this particular pig.
Oh and it would seem that the UK establishment are making sure that they even have a reserve dog in the fight. From the RSS.
Clearly we welcome an independent review which is likely to lead to an improvement in economic statistics.
How independent will Professor Sir Charles Bean be? After all we discovered in his car crash interview with Channel 4 back in September 2010 that he has little respect for savers! Actually the RSS also has its concerns on this front.
The production and governance of UK statistics are independent of government and should continue to be.
I pressed the matter at yesterday’s public meeting as this is outside of the UK infrastructure (ONS, UK Statistics Authority,and National Statistician) and they had no reply other than “it is under advisement”
Still as Professor Bean is an enormous beneficiary from the RPI via his Bank of England pension there is an opportunity for him to revert to being like Mr.Bean one more time should he look to deny it to everyone else.
These rather neatly demonstrate why so much effort is going into a campaign of disinformation and attempted discrediting of the RPI.
The all items CPI annual rate is 0.0%, down from 0.1% in May.
The all items RPI annual rate is 1.0%, unchanged from last month.
They present quite a different picture of the economic world as one is on the edge of giving us yet more “Deflation” headlines whereas the other does not. The official view on RPI also has strong supporters in the media and from the Twitter responses I have just received at the Financial Times in particular. These are from the economics editor Chris Giles.
NOT REALLY. IT’S A USELESS MEASURE OF OWNER-OCCUPIED HOUSING BASED ON INTEREST RATES…
Of course he is entitled to his opinion but it misses out the fact that CPI is flawed too and that it ignores a very important sector of the UK economy which is owner occupied house prices. More on this later.
What are the prospects for UK inflation?
If we look deeper into the data we see that June saw continued disinflationary pressure on producer prices.
The factory gate prices (output prices) for goods produced by UK manufacturers fell 1.5% in the year to June 2015, compared with a fall of 1.6% in the year to May 2015.
The overall price of materials and fuels bought by UK manufacturers for processing (total input prices) fell 12.6% in the year to June 2015, down from a fall of 12.3% in the year to May 2015.
In a nutshell this has mostly been driven by falling oil prices (the sub-section of the output component is -14.2% on a year ago). I note that so far in July we have seen a return to that theme with oil price falling again. In terms of Brent Crude Oil it ended June around US $63 per barrel and is now US $57 so there has been another downwards push.
Should this continue we may see another zero reading for July but for a negative one we would need a solid push as on a monthly basis UK CPI fell by 0.3% last year meaning there is a largish hurdle to vault.
A Promised Bank Rate Increase
Bank of England Governor Mark Carney has been taking the opportunity of a 0% official inflation reading to catch the headlines.
timing of rate hike is moving closer
Is it closer than when he told us this back in June 2014 at Mansion House?
It could happen sooner than markets currently expect.
In terms of old technology he is sounding rather like a scratched record on this subject. Perhaps Bob Dylan was correct.
The answer my friend is blowin’ in the wind
Of Goods and Services Inflation
There is quite a dichotomy and divergence here.
The CPI all goods index annual rate is -2.0%, down from -1.8% last month.
The CPI all services index annual rate is 2.2%, down from 2.3% last month.
Like a game of two halves isn’t it?
The picture is changing but some things remain the same as we observe the UK establishment deploying ever more resources ( Dames, Professors, Sirs) in its efforts to improve as in see lower numbers recorded for UK inflation. I would return to the open meeting at the RSS yesterday where the supposedly discredited RPI was described as “trusted” with no dissenters apparent. Perhaps that is another reason why they want to get rid of it!
There is some hope as John Astin and Jill Leyland presented a paper yesterday on a new Household Inflation Index. I particularly approve of the fact that it plans to cover the issue of UK housing costs throughly.
We therefore propose that all elements of owner-occupier expenditures – deposits and outright payments, mortgage payments (both interest and capital), mortgage protection premiums, spending on renovations and extensions, repairs and maintenance, stamp duty land tax, legal surveyor and estate agents fees, insurance of dwellings – should potentially be considered in scope.
That’s the spirit! Also I note that they do not share the view expressed by Chris Giles on mortgage interest-rates shown above.
Also some of my views on inflation were expressed here in a video interview with Kumutha Ramanathan of World Finance.