Today is inflation day in the UK and we are now at the point where it begins to turn. There is something of a contradiction in that and my subject of yesterday which is the way that negative interest-rates are appearing ever more on the establishment’s agenda. But I guess they never did keep up with events. Before we even get to the numbers from the UK we have seen these from Sweden Statistics this morning.
The inflation rate was 0.8 percent in March, up from 0.4 percent in February……..The inflation rate according to CPIF was 1.5 percent in March 2016.
Inflation at 0.8% and rising and at 1.5% if you take out all of the interest-rate cuts which have lowered mortgage rates too does make one question why the official interest-rate is at -0.75% in an economic boom! It does seem to be a Nordic theme however as the Norwegian central bank has joined in the Open Mouth Operations this morning. From Ioan Smith.
NORWAY’S OLSEN REITERATES CAN’T EXCLUDE NEGATIVE RATE
In essence the change in inflation prospects and trajectory comes here. The fall in the price of oil drove down producer price and then consumer price inflation. But as time progresses it drops out of annual inflation numbers and as it gets lower it becomes harder for it to fall as producing it becomes less profitable and in the case of the shale producers turns into a loss. That latter factor has contributed to the way that the oil price has bottomed out so far in 2016 and then risen.
This morning Brent Crude Oil has risen above US $ 43 per barrel which compares to the circa US $36 it closed 2015 at. Because of the lower price the percentage rise sounds impressive at 20% or so but it is more helpful now to look at it as being US $7 higher. If we look back we see that it is now 25% lower than a year ago which compares to numbers around 50% before. The recent rise will not be in today’s consumer inflation numbers but we see that should the price of oil remain around here then the effect on the inflation numbers will be felt as we move to high summer. The effect will be like a brick on the end of a piece of elastic especially if we factor in the fact that whilst it has rallied this week the UK Pound £ is lower against the US Dollar. Indeed this time last year it began to head towards US $1.60 so the comparisons going forwards will be tough.
Let us go straight to the headline.
The Consumer Prices Index (CPI) rose by 0.5% in the year to March 2016, compared with a 0.3% rise in the year to February.
The panic of those I described as “deflation nutters” is presumably subsiding and we see the rise was mostly driven by this.
Rises in air fares and clothing prices were the main contributors to the increase in the rate between February and March 2016.
The air fare rise was probably mostly an Easter effect but clothing much less so. Also I note that the rising oil price had not at that point impacted inflation via fuel prices at the pump.
These upward effects were partially offset by a downward contribution from motor fuels with petrol prices rising by 0.9 pence per litre this year compared with a larger rise of 3.8 pence per litre a year ago.
There was also a downwards effect from lower domestic gas prices about half of which was recorded in March and half will come in April.
If we move to the area in these numbers which is flashing amber warning here it is.
The CPI all services index annual rate is 2.8%, up from 2.4% last month……..The CPI all services index is 101.7, up from 101.1 in February.
I have been warning about this for some months now although of course we know that should inflation pick-up quickly later this year the official story will be that it is a “surprise”. But there appears to be plenty of inflation in a sector which comprises some 4/5 ths of the UK economy.
As you can see producer prices are still falling but the pressure is reducing.
The overall price of materials and fuels bought by UK manufacturers for processing (total input prices) fell 6.5% in the year to March 2016, compared with a fall of 8.2% in the year to February 2016………the total input price index rose 2.0% (on the month), compared with a rise of 0.1% last month.
The annual rate was -14.6% as recently as last August which reinforces the “winds of change” theme.
Retail Price Index
There is a rising disconnect here between our old official inflation measure or RPI and the new one.
The annual rate for RPIX, the all items RPI excluding mortgage interest payments (MIPs) index, is 1.6%, up from 1.4% last month.
This is now 1.1% per annum higher than the official CPI measure and the reasons for the difference are getting ever more uncomfortable for those who asserted in essence “RPI bad CPI good” as those who follow the debate at the Royal Statistical Society will know. The argument is much more nuanced that the UK establishment and its media acolytes would like you to believe. Anyway before I move on let me give you the numbers for something which was badged as an “improvement” and now has been kicked into the long grass. That is assuming Alpha Centauri has long grass….
The all items RPIJ annual rate is 0.8%, up from 0.6% last month.
Has there ever been a shorter-lived improvement than this?
There seems to be plenty of it around according to the official statistics.
UK house prices increased by 7.6% in the year to February 2016, down from 7.9% in the year to January 2016.
Prices are rising everywhere except in Scotland which I suspect is being affected by the impact of the oil price falls on Aberdeen. Also if we drop out the London effect we continue to see rises.
Excluding London and the South East, UK house prices increased by 5.0% in the 12 months to February 2016.
Those of a more cynical nature or perhaps familiar with the methods of the UK establishment are probably thinking that this is why owner-occupied costs are not included in CPI inflation. Instead the establishment came up with this.
The all items CPIH annual rate is 0.7%, up from 0.6% in February
Yes you have it all that apparent inflation only raises the measure by 0.2% which is because they use rents. Even the UK Statistics Authority cannot bring itself to describe this shabby effort as a National Statistic.
If we put house prices into the CPI data then it would be recording annual inflation at a rate of 1.5% which would put a very different perspective on things wouldn’t it?
The situation is now changing for the trajectory of UK inflation as we note the fading of oil price disinflation whilst services inflation rises. Some of the move seen in March was due to Easter but we may see something of a misleading picture over the next 3 months or so. That is because the annual rate of inflation may remain low but later in the year it will rise quickly unless something changes. To put it another way the emergency 0.5% Bank Rate of the Bank of England should already be higher if it had any faith in its own Forward Guidance and it genuinely wanted to hit its inflation target.
Meanwhile if we look at house price inflation we see this from the Resolution Foundation.
Prices up 26% in three years since Feb 2013. Average weekly earnings up 5.6% in same period.
Yet officially there is no inflation. How can that be when so many things are so expensive?