Today the UK economic data flow coincides with the news story of the week which is the oil price. After yesterday’s press conference from the Saudi oil minister things are now much calmer. From sharjah24.ae
He added that this interruption represents about half of the Kingdom’s production of crude oil, equivalent to about 6% of global production. However, he stated that over the past two days, “the damage has been contained and more than half of the production which was disrupted as a result of this blatant sabotage has been recovered.”
The Kingdom’s production capacity will return to 11 million barrels per day by the end of September, he said, and to 12 million barrels per day by the end of November. Production of dry gas, ethane and gas liquids will gradually return to pre-aggression levels by the end of this month.
A lot of this seemed targeted at the Aramco IPO but the price of a barrel of Brent Crude Oil has fallen back to US $64.50. So the inflation impact has been considerably reduced since Sunday night. I did warn that things got overheated on Monday.
It then fell back to more like US $68 quite quickly. For those unaware this is a familiar pattern in such circumstances as some will have lost so much money they have to close their position and everybody knows that. It is a cruel and harsh world….
On the other side of the coin a welcome rebound in the value of the UK Pound £. It is only a little more than a fortnight after so many reports of its demise were written when it went below US $1.20 for a while whereas it is just below US $1.25 as I type this. That gave us another reminder to always be very nervous about crowded trades. Of course the picture ahead is unclear and may well be volatile although it was yet another bad move by Bank of England Governor Mark Carney to say this. From MorningStar.
Bank of England Governor Mark Carney says that sterling’s recent volatility means it is behaving more like an emerging market currency than one of a leading global economy.
Sometimes his ego makes his forget his responsibilities. Returning to our inflation theme should the stronger level for the UK Pound versus the US Dollar be maintained it will help with inflation prospects due to the way so many commodities are priced in dollars.
This turned out to be quite welcome as the lower value for the UK Pound £ was more than offset by the lower price for crude oil ( this was August).
The growth rate of prices for materials and fuels used in the manufacturing process was negative 0.8% on the year to August 2019, down from 0.9% in July 2019.
If you want the exact impact here they are and they give a clue as to how volatile the impact of the crude oil price can be.
The largest downward contribution to the annual rate in August 2019 came from crude oil, which contributed 2.09 percentage points and had negative annual price growth of 11.6% . This compares to an annual price growth of 41% this time last year.
So there is a downwards push for later in the year and a nearer impact is also downwards for the level of inflation.
The headline rate of output inflation for goods leaving the factory gate was 1.6% on the year to August 2019, down from 1.9% in July 2019.
In the welcome news was something that David Bowie might have described as a Space Oddity.
Transport equipment provided the largest upward contribution of 0.32 percentage points to the annual rate , with price growth of 2.8% on the year to August 2019 . This is the highest the annual rate has been within this industry since September 2017 and is driven by motor vehicles, trailers and semi-trailers.
The only thing I can think of is that I believe there was a change in the subsidy for some types of electric vehicles.
The news here was welcome too.
The Consumer Prices Index (CPI) 12-month rate was 1.7% in August 2019, down from 2.1% in July 2019.
This has a range of beneficial impacts because if we look at the wages data for the month of July it showed annual growth of 4.2% meaning real wages rose by 2.5% using this measure.
The good news has some flies in the ointment however. The first is that an inflation measure which ignores owner-occupied housing is therefore not that appropriate as a wages deflator. Also two areas which have been troubled drove the inflation fall.
Recreation and culture, where within the group, the largest effect (of 0.09 percentage points) came from games, toys and hobbies (particularly computer games including
downloads), with prices overall falling by 5.0% between July and August 2019 compared with a smaller fall of 0.1% between the same two months a year ago.
Regular readers will be aware that our statisticians have problems dealing with games which get discounted and if we look at fashion clothing there is the same problem. Ahem.
Clothing and footwear, where prices rose by 1.8% this year compared with a larger rise of 3.1% a year ago. The main effect came from clothing, particularly children’s clothing. Prices of clothing and footwear usually rise between July and August as autumn ranges start to enter the shops following the summer sales season. The rise was smaller this year and may have been influenced by the proportion of items on sale, which fell by less between July and August this year than between the same two months a year ago.
Apologies for the raft of technical detail but these are important points. Not only for themselves but the latter came up in the debate over the RPI as there were arguments it made up around 0.3% of the gap ( presently 0.9%), But in a shameful act the UK Statistics Authority decided to use the three wise monkeys as its role model going forwards. No doubt the research is finding its way to the recycling bin.
If we switch to the RPI we see a sign that will send a chill down the spine of our official statisticians and statistics authority.
games, toys and hobbies
Are one of the reasons it fell by less and thus there is a hint it may be dealing with the issues here in a better fashion.
The all items RPI annual rate is 2.6%, down from 2.8% last month.
As you can see it only fell by half the amount.
There was some really good news here.
Average house prices in the UK increased by 0.7% in the year to July 2019, down from 1.4% in June 2019. This is the lowest annual rate since September 2012, when it was 0.4%.
I have long argued that UK house prices have become unaffordable and we see that in the year to July they fell by 3.5% relative to wage growth. More of this please as it is the best way of deflating the bubble. As ever this conceals regional differences which opened with a surprise.
The lowest annual growth was in the North East, where prices fell by 2.9% over the year to July 2019. This was followed by the South East, where prices fell by 2.0% over the year…….House price growth in Wales increased by 4.2% in the year to July 2019, down slightly from 4.3% in June 2019, with the average house price at £165,000.
With LSL Acadata reporting earlier this week that annual house price growth in the year to August was 0% we seem to be coming out of the house price boom phase in terms of increases if not price levels.
Pretty much all of the trends here are welcome as we see lower consumer, producer price and house price inflation. As I have already pointed out this boosts real wages and let me add that over time I expect that to boost economic output and GDP. Although of course there are plenty of other factors in play in the latter. As to the detail it looks as though the monthly fall may have been exacerbated by the problems with the measurement of inflation in items which have a fashion component. Let me give you an example of this which is that we spotted a pair of Nike running shoes which retail at £209.95 at Battersea Park Running Track yet my friend managed to get the previous model for £28 at a sale outlet. Put that in the inflation numbers….
This leads more egg on the face of the UK inflation establishment as it would appear that in the latest data the RPI handled such matters in a superior fashion. Also let me just remind you that whilst the fantasy imputed rent driven CPIH looks more on the ball because of the decline in house price growth this is a fluke along the lines of the fact that even a stopped watch is right twice a day.