Today is inflation day in the UK and it is particularly significant because we are as Carole King put it “So Far Away” from the target of an annual inflation rate of 2% for the Consumer Price Index. Actually inflation on the CPI measure has been pretty much 0% all year and if we look at the news there are still disinflationary influences to be found. One of them is the ongoing slow down in China. From Bloomberg.
Imports plunged 17.7 percent in yuan terms in September from a year earlier, widening from a 14.3 percent decrease in August and an 11th straight decline.
This has an implication for demand for commodities and their price which is likely to have an impact however many copper mines Glencore tries to sell or close. By the way how does using debt to buy at the top and then selling at the bottom work as a business model?
Also we discovered this morning why the price of oil fell by around 4% yesterday with the price of a barrel of Brent Crude Oil falling back to the US $50 level. From the International Energy Agency.
Global demand growth is expected to slow from its five-year high of 1.8 mb/d in 2015 to 1.2 million barrels per day (mb/d) in 2016 – closer towards its long-term trend as previous price support is likely to wane,
Also Iraq is pumping more oil. You may note that this is yet another release where we have to suspect some form of “Early Wire” after yesterday’s oil price action.
UK Retail Prices
We already know that UK retail prices saw further downwards pressure in September as the British Retail Consortium (BRC) told us a week ago
Overall shop prices reported deflation of 1.9% in September from a 1.4% decline in August.
Food price fell again (0.5%) which most of us (farmers and central bankers excepted) will welcome.
Headline writers will be delighted with this bit as they rush to call it deflation in spite of the fact that the economy continues to grow with retail sales growth reported to be 2.6% in September overnight by the BRC.
The Consumer Prices Index (CPI) fell by 0.1% in the year to September 2015,
If we move to the underlying index we see that at 128.2 it is below the 128.4 of August and also September 2014. The factors which drove this were lower fuel prices and a slower rise in clothing prices than last year leading to this.
The CPI all goods index annual rate is -2.4%, down from -2.0% last month.
If you really want to have a disinflation festival there is this.
The annual rate for CPI excluding indirect taxes, CPIY, is -0.2%
Retail Price Inflation
Up until now the RPI has followed quite a different path to CPI as it has avoided the “deflation” hype by remaining at an annual rate of around 1%. However September was different.
The all items RPI annual rate is 0.8%, down from 1.1% last month.
It was particularly affected by the fall in motor fuels prices (-0.13% on its own) and I suspect this is due to the different timing of its measurements. If we move to the version which drops the Carli methodology we see an even sharper fall.
The all items RPIJ annual rate is 0.1%, down from 0.5% last month……..The all items RPIJ is 239.1, down from 239.4 in August.
So we see that RPIJ itself has dived closer to noflation and of course disinflation which is a clear change. This will give the Bank of England some food for thought and especially Mark Carney with his interest-rate rise promises.
What is coming next?
If we look to the producer price series for a hint of what is coming next we get a by now familiar message.
The overall price of materials and fuels bought by UK manufacturers for processing (total input prices) fell 13.3% in the year to September 2015……….Factory gate prices (output prices) for goods produced by UK manufacturers fell 1.8% in the year to September 2015.
For the vast majority of us this is good news as the driving forces of this are lower food and fuel prices.
Is the UK still an “inflation nation”?
Whilst the headlines may scream “deflation” or if better informed disinflation there are still pockets of what I have labelled in the past the “inflation nation” that is the UK.
The CPI all services index annual rate is 2.5%, up from 2.3% last month.
This has been a persistent feature of this phase where inflation in services fell but only to the inflation target and now may well be picking up again. Is it responding to the wage rises we have seen?
If you are looking for factors here well one is still the changes to the university tuition fees as inflation in education is running at an annual rate of 9.1% although the effect is fading in spite of the rise in its weighting.
House Prices and Rents
This is a consistent problem for those who argue that inflation is dead as both continue to rise. The CPI methodology neatly skips the problem by turning its telescope to its blind eye on this matter.
UK house prices increased by 5.2% in the year to August 2015, unchanged from 5.2% in the year to July 2015.
Here is a deeper perspective for you on the situation.
In August 2015, the UK mix-adjusted house price index increased by 0.7% from the record level witnessed in July 2015 to reach 218.5 . The UK index is 17.8% higher than the preeconomic downturn peak of 185.5 in January 2008.
If only wages had done anything like that. In terms of house prices real wages have seen heavy falls in the credit crunch era which is a clear fail when we consider that such a development was one of the reasons we are in the mess that we are in.
As to rents Countrywide tells us this according to Property Wire.
The average rent of a newly let home in the UK has increased by 3.6% year on year to £941 per month, according to the latest rental market index.
We see a range of numbers for rental inflation of which this is one of the lowest.
The national embarassment which is CPIH
We do have a measure which is supposed to incorporate owner-occupied housing costs in consumer inflation. In spite of warnings from me that it would fail the UK establishment pressed ahead and then it failed.
CPIH is currently undergoing re-assessment to evaluate the extent to which it meets the professional standards set out in the Code of Practice for Official Statistics. In August 2015 its National Statistics status was removed
Actually the situation is summed up by the fact it was August 2014.
How is CPIH 2.0 going?
The all items CPIH annual rate is 0.2%, down from 0.3% in August……The OOH component annual rate is 1.8%, unchanged from last month.
So not so well really……
Believe it or believe it not Paul Johnson of the Institute of Fiscal Studies has recommended that it be our main inflation measure. So he should be banished to the corner of the room wearing a hat with a D on it. That was Madness,
You’re an embarrassment…
Rather intriguingly Twitter posted an excellent response to these numbers. First we had the Chancellor George Osborne who had 24 hours to think this up.
Inflation at -0.1% while wages rising at fastest rate in over a decade is a real boost for budgets of working families
Then the reply from LandlordXX
so, George, if deflation is good, why is
@bankofengland trying to create inflation?
I will leave that to the Chancellor who is trying to have his cake (pasty?) and also to eat it.
Also this is the month that UK benefits annual increases are set so let me calm some worries but pointing out that they will not fall. Although some may not be calm when they see the cost of the indexation switch from RPI to CPI. From Dharshini David of Sky News.
decision to link pensions etc to CPI not RPI since 2011 cost recipients about 0.7% per year – but saved
@hmtreasury c. £6bn so far.
Odd how what we pay still depends on the higher RPI isn’t it? Oh and there is also this which at -0.1% CPI inflation sticks out like a sore thumb especially post a General Election.
uprating the basic State Pension by at least 2.5% each year of this Parliament.
The Government Actuary published the cost and then changed it mind and withdrew it whereas @pensionschamp estimates it at £1.8 billion per annum. So as Taylor Swift put it the public finances are.
Now I’m lying on the cold hard ground
Oh, oh, trouble, trouble, trouble
Oh, oh, trouble, trouble, trouble