It is Wednesday so it is inflation numbers day in the UK. If that feels a little out of key then you are right as they used to be on a Tuesday and the labour market data set followed the next day. But in a sad indictment of our rulers it was decided that releasing the labour market numbers at 9:30 today did not give then enough time to spin, excuse me, analyse the numbers in time for Prime Ministers Questions at lunchtime. The theme of being out of tune though continues today as we note the ongoing problems in simply collecting the prices.
As a result of the ongoing coronavirus (COVID-19) pandemic, we identified 74 CPIH items (or 14.2% of the CPIH basket by weight) that were unavailable to UK consumers in May, as detailed in table 58 of the Consumer price inflation dataset; this is down from 90 unavailable items in April; compared with the February 2020 index (the most recent “normal” collection), we have collected a weighted total of 81.6% (excluding unavailable items) of the number of price quotes for the May 2020 index, although the coverage varies across the range of items.
There is a clear issue with being unable to collect some of the data. Added to that is the fact that prices which are unavailable are likely to be the ones which have risen in price. For example the new HDP ( High Demand Products) measure had to drop out things like face masks and hand sanitiser for a while which introduces a downwards bias to the reading. What happens when they cannot record something? Well let me hand you over to the BBC explanation.
The ONS admitted that it had difficulty compiling inflation statistics for May, since many areas of the economy were completely shut down.
For instance, inflation figures for holidays had had to be “imputed”, it said.
Of course some will be pleased by this as there is a lot of official enthusiasm for imputing prices as they have demonstrated in the area of rents. For newer readers the official CPIH measure uses fantasy rents to impute owner-occupied housing costs. This is the reason in spite of all the official effort it remains widely ignored as I doubt anyone charges themselves rent to live in their own home. Even worse they have had real trouble measuring actual rents and you do not have to take my word for it,just read the release from earlier this week.
To achieve this, completely new innovative methodology will be needed. In October 2019, we started building a prototype using a new methodology with the capability to meet the aims specified in Section 3.
Perhaps we will get inflation numbers with this year’s rents rather than last years? It is rather conspicuous that they have failed to answer my question on this subject
A further fall was recorded in terms of the annual rate
The all items CPI annual rate is 0.5%, down from 0.8% in April……The all items CPI is 108.5, unchanged from last month.
As you can see prices were unchanged on a monthly basis although there were shifts in the structure.
The CPI all goods index annual rate is -0.9%, down from -0.4% last month……The CPI all services index annual rate is 1.9%, down from 2.0% last month.
That is intriguing as we see disinflation in the good sector but not that much impact at all on services.That teaches us a little about pricing in that sector as it has seen a volume drop that for once justifies the word collapse and yet the pricing impact has been small. Looking at specific areas we see this.
Transport, where the price of motor fuels fell this year but rose a year ago, contributing 0.12 percentage points to the easing in the headline rate. Petrol prices fell by 2.8 pence per litre between April and May 2020, compared with a rise of 4.2 pence per litre between the same two months a year ago. Similarly, diesel prices fell by 2.6 pence per litre this year, compared with a rise of 2.8 pence per litre a year ago.
I doubt any of you are surprised by this and it was joined by Recreation and Culture which is of note as a problem area popped up again.
Within this broad
group, there was a downward contribution (of 0.06 percentage points) from games, toys
and hobbies, with the effect coming from a variety of traditional toys and games, plus
computer games consoles and computer games
For newer readers this is the effect of computer games being discounted when they go out of fashion which the numbers struggle to cope with.Fashion clothing has the same problem and actually in an odd link led to them trying to neuter the RPI. Next we get an attempt at humour, at least I hope it is humour.
Health, where prices overall fell by 1.4% this year compared with a rise of 0.2% a year ago.
The effect came from pharmaceutical products, particularly pain killers and antihistamine
tablets, and other medical and therapeutic products, particularly daily disposable soft
Does anybody believe health costs are falling?
On the other side of the coin was this.
Food and non-alcoholic beverages, with prices rising by 0.5% this year compared with a smaller rise of 0.1% a year ago.
The details are for the CPIH measure because our statistical establishment is so desperate to get it a mention they only break the numbers down for it. From the point of view of the Bank of England Governor Andrew Bailey can add the new CPI number to the letter he is presently composing to the Chancellor to explain why it is more than 1% below target. His quill pen is probably being dipped into the Bank of England official ink no doubt being held by a flunkey right now as he explains how he will expand QE by another £100 billion or so in response. That is something of a Space Oddity as of course QE will boost the asset prices it ignores. Oh well! As Fleetwood Mac would say.
Retail Prices Index
This too saw a fall in the annual rate.
The all items RPI annual rate is 1.0%, down from 1.5% last month……..The all items RPI is 292.2, down from 292.6 in April.
I note that on a monthly basis the RPI fell. If it did that more often it would quickly be back in official favour! Also even under the old system the Governor of the Bank of England would have to get his quill pen out.
The annual rate for RPIX, the all items RPI excluding mortgage interest payments (MIPs), is
1.3%, down from 1.6% last month
As to credibility of our inflation numbers I am afraid this is another downgrade.
The published RPI annual growth rate for April 2020 was 1.5%. If the index were to be recalculated
using the correct interest rate, it would reduce the RPI annual growth rate by 0.1 percentage points
To get mortgage rates wrong is really rather poor and it was not the only mistake.
In addition, an error has been identified in the adjustment made to reflect a change in product size
for a single price quote for “canned tuna” collected in April 2020.
As you can see there is a large amount of doubt about the inflation numbers right now. This has not stopped much of the media from already setting the scene for more monetary policy easing. The Bank of England votes later today and it has the problem that the Deputy Governor for this area Ben Broadbent has actively demonstrated a wide-ranging ignorance of the issues. Just as a reminder I expect them to vote for at least another £100 billion of QE bond buying. This is in spite of the fact that the asset prices it will boost are ignored by the CPI inflation measure they target.
Meanwhile some new research has suggested that prices are in fact rising more quickly, and the emphasis is mine.
In this paper, we use detailed scanner data to provide a portrait of inflation during the Great Lockdown, covering millions of transactions in the UK fast-moving
consumer goods sector. We find that there was an unprecedented spike in inflation at the beginning of lockdown, which coincided with a reduction in product variety.
Indeed there was more.
The price increases we found for many categories, including those not subject to demand spikes, indicate supply disruptions and changes in market power may be playing an important role.
This has a consequence.
Many households are subject to reduced
income and liquid wealth, and higher prices for foods, drinks and household goods
will feed into squeezed household budgets
Here are the numbers.
First, we find that in the first month of lockdown month-to-month inflation was
2.4%. This sharp upturn in inflation is unprecedented across the preceding eight
So thank you to Xavier Jaravel and Martin O’Connell for this paper which suggests that as well as Fake News we also have to contend with fake official statistics.
The Investing Channel