About notayesmanseconomics

I am an independent economist who studied at the London School of Economics. My speciality was (and remains) monetary economics. I worked in the City of London for several investment banks and then on my own account over a period of 15 years. After initially working in the government bond department at Phillips and Drew Ltd. I moved on into the derivatives arena with options of all types being a speciality. I never lost my specialisation in UK interest rates and also traded as a local on the London International Financial Futures Exchange where I mostly traded futures and options on future and present UK interest rates. So with my specialisations of monetary economics and knowledge of derivatives I have plenty of expertise to deploy on the financial and economic crisis which has unfolded in recent years. I have also worked in Tokyo Japan again in the derivatives sphere and the Japanese "lost decade" made me think about what I would do if it spread,which is very relevant now. My name is Shaun Richards and apart from the analysis on here you may have heard me on Share Radio where I used to regularly analyse economic events and developments, Bloomberg Radio or on BBC Radio 4's Money Box. I also write economics reports for groups such as Woodford Investment Management and reports for pension funds on a particular speciality which is the analysis of inflation measurement. I can be contacted via the contact details on this website or on twitter via @notayesmansecon.

Will the US end 2023 with interest-rates lower rather than higher than now?

Today is interest-rate day in Europe as we wait for the ECB and the Bank of England. But the world background was set last night in New York by the US Federal Reserve,

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent.

This bit was also significant.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lael Brainard; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.

As everybody voted for a 0.25% increase. That was in line with my expectation and indeed from our Bank of Canada leading indicator last week. Let me give the Federal Reserve credit here for stating the votes explicitly as for example the ECB does not meaning people end up asking President Lagarde and there is no check on her truthfulness.

However even such a big deal is now in the past and we move smoothly o to what happens next? So let us examine the US economy.

The US Economy

The Atlanta Fed GDP nowcast tells us this.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2023 is 0.7 percent, unchanged from January 27 after rounding.

So 0.2% as we would count it which is not much. Indeed in ordinary times if such a state still exists such a growth rate would have the Federal Reserve thinking about interest-rate cuts not rises. Especially if we add this from Chair Powell’s opening statement.

The U.S. economy slowed significantly last year, with real GDP rising at a below-trend pace of 1 percent. Recent indicators point to modest growth of spending and production this quarter.

He then confessed a lot of it was down to his actions.

Consumer spending appears to be expanding at a subdued pace, in part reflecting tighter financial conditions over the past year. Activity in the housing sector continues to weaken, largely reflecting higher mortgage rates. Higher interest rates and slower output growth also appear to be weighing on business fixed investment.


This of course has been something of an X-Factor trumping the situation above. Over again to Chair Powell.

Inflation remains well above our longer-run goal of 2 percent. Over the 12 months ending in December, total PCE prices rose 5.0 percent; excluding the volatile food and energy categories, core PCE prices rose 4.4 percent.

As you can see they are still trying to spin the core inflation line in spite of having to start the statement with this.

My colleagues and I understand the hardship that high
inflation is causing, and we are strongly committed to bringing inflation back down to our
2 percent goal.

Inflation in food and energy has affected people the most. But the situation forced their hand and even their brightest PhD students could not come up with an inflation number below 4.4%. Doing it ignores the reality the central bankers have been forced to confess to.

My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation.

A sort of new version of “I cannot eat an I-Pad”

However looking ahead the situation is beginning to turn.

The inflation data received over the past three
months show a welcome reduction in the monthly pace of increases

The next bit is not a little curious because if they really believed that then they could have increased interest-rates by 0.5%.

And while recent developments are encouraging, we will need substantially more evidence to be confident that
inflation is on a sustained downward path.


The official line continues to be this and the emphasis is mine.

Despite the slowdown in growth, the labor market remains extremely tight, with the unemployment rate at a 50-year low, job vacancies still very high, and wage growth elevated.

I would argue that arguing wage growth is “elevated” must come in the context of it being rather thin when compared to inflation. But the Federal Reserve must also be aware of this from last year.

From March 2022 to June 2022,
The difference between the number of gross job gains and the number of gross job losses yielded a net
employment loss of 287,000 jobs in the private sector during the second quarter of 2022.

That was from the Bureau of Labor Statistics on the 25th of January and is a bombshell. You will realise how much when I point out that they originally claimed there were 1.1 million job gains. So there has been a downwards revision of some 1.4 million. This provides us with several contexts as we remind ourselves that we were assured the US could not be in recession back then due to the labour market being so strong. Also such large revisions provide quite a context for the non-farm payroll numbers which in that context are smaller than the margin of error. Finally the jobs market looks a fair bit weaker now.


The statement came with by now usual rhetoric.

Even so, we have more work to do. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the
economy does not work for anyone.

That clearly suggests more interest-rate rises are on there way. Or it would if central bankers were ever clear about such things.

“If I seem unduly clear to you, you must have misunderstood what I said.”

That was Alan Greenspan to a Senate Select Committee back in 1987. I think that the real message came in the previous couple of sentences.

Over the past year, we have taken forceful actions to tighten the stance of monetary policy. We have covered a lot of ground, and the full effects of our rapid tightening so
far are yet to be felt.

The first is essentially PR where they are hoping the media will pick up on and use the word “forceful” to influence perceptions. The second is more important as it hints that they think they may have done enough already.

Indeed my Never believe anything until officially denied line may be getting a hearing as this.


Led to this.

Swap contracts tied to this year’s Fed meetings show approximately 50 basis points of rate cuts are now firmly priced between the June policy peak of 4.90% to the 4.40% overnight lending rate tied to the December policy meeting. ( Bloomberg)

Will we get one more rise or was that it?


Turkey has placed its faith in house prices and stock market rallies

As we approach the end of the interest-rate raising season of the world’s main central banks there is of course the issue of the country that decided to cut interest-rates in the face of inflation. An interesting tactic which had theoretical support in some areas. However I noted this on Monday from the Confederation of Turkish Trade Unions.

Despite Türkiye upping its minimum wage at the end of December by 54 percent to 8,506 lira (414,95 euro), it remains under the starvation line of 8,864 lira (432,41 euro). ( Bianet)

We are used to ideas about poverty lines but it seems that things have taken a grim step backwards here.

The poverty line, the food expenditure, together with other mandatory monthly expenditures such as clothing, housing (rent, electricity, water, fuel), transportation, education, and health was determined at 28,874 lira (1408,57 euro).

The monthly cost of living for a single person was assessed at 11,556 lira (563,74 euro) per month. ( Bianet )

So the minimum wage is a long way short of the poverty line. If we switch to the causes of this it is another problem for central banking fans of core inflation which excludes food and energy.

One of the reasons for the high starvation line is the high increases in food expenditures. Food prices went up by 9,02 percent in January, and the annual increase was 108 percent. With the highest price hikes seen in animal products.

One side-effect of all of this is that we finally see a country where there has been a wage-price spiral of sorts.

Besides the upping of the minimum wage, the government has been on a public spree to compensate workers and pensioners for their deteriorating purchasing. Earlier this month, civil servants and pensioners received a 30 percent pay rise.

Nonetheless, these increases remain a seeming drop in the bucket as the pay rises remain under the inflation rate. ( Bianet )

Such is that pace of change here I believe the rise was supposed to be 25% but President Erdogan raised it to 30% as events overtook him.


There was some relative good news in the latest announcement.

A change in general index was realized in CPI (2003=100) on the previous month by 1.18%, on December of the previous year by 64.27%, on same month of the previous year by 64.27% and on the twelve months moving averages basis by 72.31% in December 2022. ( Turkey Statistics)

Although a considerably lower annual rate comes with a monthly rate of 1.18% that would be considered high pretty much anywhere else. Even the annual rate is double the pay rise for civil servants we looked at above. Also the inflation is in areas that are essential because we have already noted food inflation.

On the other hand, housing with 79.83% was the main group where the highest annual increase realized.

The next issue is that the official numbers have been posed a challenge by ENAG.

ENAGroup Consumer Price Index calculated using daily price data increased by %5,18 in December
2022…….The last 12 months increase rate in ENAGrup Consumer Price Index (E-CPI) is %137.55.

I am not saying that ENAG are completely accurate but the depth of feeling in Turkey does suggest the official numbers are too low which will inflate real GDP for example.

Lira Problems

The situation looks a lot calmer on the surface. That is because the falls were much heavier early last year. Now we see a situation where 18 Lira per US Dollar was passed in mid-August but now we are only at 18.8. So a much slower rate of decline. But whilst that no doubt is helping the inflation numbers it has elements of rigging or we have moved from a floating to a manipulated exchange rate. The latest efforts were highlighted by the Financial Times last week.

Turkey has unveiled a new scheme to push exporters to hold less foreign currency as the government of Recep Tayyip Erdoğan steps up its battle to defend the lira ahead of this year’s elections. The country said on Thursday it would offer companies new incentives to swap money they earn abroad into lira in return for a vow not to purchase foreign currencies.

So if you are an exporter and you get paid in Dollars, Pounds or Euros what are you supposed to do?

Under the programme announced on Thursday, Turkey would provide 2 per cent “conversion support” when companies exchanged international earnings to lira with the central bank, and they pledged not to buy foreign currencies over a set period, according to the central bank.

That must clog business up and will impact on the exports Turkey needs to improve especially as well see for yourself.

It did not specify the length of the commitment that would be required.

That makes me think of Buzz Lightyear

To Infinity! And Beyond!

This would be on top of the explicit measures to support the Lira.

Turkey also spent $85.5bn last year intervening in the currency market in an attempt to slow the lira’s fall, according to Goldman Sachs estimates that take into account foreign currency purchased from exporters and then re-sold into the market. ( FT )

Plus the implicit ones.

 such as the special currency-protected savings accounts that are open to businesses and consumers, which have helped to stabilise it in recent months. ( FT)

That latter one is a potentially enormous open ended liability for Turkish taxpayers. Of course many of them also benefit but those without savings such as the poor have no such recompense.

The Trade Position

Theoretical economics would  give us stories about J-Curves and indeed Reverse J-Curves but the latest reality is this from yesterday.

According to the provisional data, produced with the cooperation of the Turkish Statistical Institute and the Ministry of Trade, in December 2022; exports were 22 billion 910 million dollars with a 3.0% increase and imports were 32 billion 612 million dollars with a 12.2% increase compared with December 2021. ( Turkey Statistics)

The problem they have is twofold  I think.They were not constructed for moves of the size we have seen and also there was the surge in energy prices. If we try to allow for the latter it is hard to pick out much once we allow for the margin of error.

Exports, excluding energy products and non-monetary gold, were 21 billion 437 million dollars with a 2.7% increase in December 2022. Imports, excluding energy products and non-monetary gold, were 21 billion 704 million dollars with a 0.5% increase in December 2022.

Having to mention Gold in your trade position is rarely a good  sign and nor is presenting it in US Dollars rather than your own currency.


If we now switch to interest-rates we see that the Erdogan policy of cutting interest-rates to reduce inflation began on the 24th of September 2021 when it was cut from 19% to 17%. The most recent cut on the 25th of November last year reduced it to 9%. That is supposed to achieve this.

The CBRT will continue to use all available instruments decisively until strong indicators point to a permanent fall in inflation and the medium-term 5% target is achieved in pursuit of the primary objective of price stability.

The official claim is that economic growth has been high but via the under recording of inflation I doubt that.

A strong growth was observed in the first three quarters of 2022. ( CBRT )

How has this survived at all? Well some have done rather well. This is from the Financial Times about 2022.

The Borsa Istanbul 100 equities index has soared almost 200 per cent this year. Even in US dollar terms, which take into account a steep fall in the lira, Turkish stocks rallied 110 per cent, compared with a fall of 22 per cent for MSCI’s broad gauge of emerging market equities.

Also house prices

In November 2022, RPPI increased monthly by 3.8 percent, recorded an annual increase of 174.3
percent in nominal terms and 54.0 percent in real terms. ( CBRT)

Back to Buzz Lightyear….

UK money and credit data suggest it will be 0.25% from the Bank of England this week

Today brings the UK into focus and we can start with something rather extraordinary. The recent position for the UK has improved as forecasts of recession for the end of 2022 foundered somewhat on the relatively strong GDP report for November. It is still possible but according to our official statisticians December would have to be worse than -0.5% for GDP. Also as we have been noting the energy situation has been seeing quite a lot of improvement symbolised this morning by the UK having an electricity surplus of 2.5 GW at 8.30 am. As a figure of note we had a record export to France of 4.08 GW so the damaged interconnector must have been repaired and both we and they have a little more energy security.

However one organisation seems to have ignored that.

The UK economy will shrink and perform worse than other advanced economies, including Russia, as the cost of living continues to hit households, the International Monetary Fund has said.

The IMF said the economy will contract by 0.6% in 2023, rather than grow slightly as previously predicted. ( BBC News )

The next bit is rather bizarre unless of course they want the UK economy to weaken.

However, the IMF also said that it thinks the UK is now “on the right track”.

Also the BBC seems to have changed what the IMF does in a curious description.

The IMF, which works to stabilise economic growth, said it had downgraded its forecast for the UK because of its high energy prices, rising mortgage costs and increased taxes, as well as persistent worker shortages.

Actually those who recall last autumn can remember that the IMF was against the UK lowering taxes! Anyway this is a pretty regular occurance from them and unless we did grow by 4,7% as they forecast we need not worry too much.

IMF chief economist Pierre-Olivier Gourinchas told the BBC that last year, the UK had “one of the strongest growth numbers in Europe”.

There is something a little more hopeful in that the BBC has realised its economic coverage has been a problem and has reviewed it.

We think too many journalists lack understanding of basic economics or lack confidence reporting it. This brings a high risk to impartiality.

I think they are trying to change and on a personal level I was interviewed on The Nihal Show on BBC Radio 5 Live towards the end of last year. But to really step forwards they need to start at the top and they have had a succession of economics editors more interested in politics than economics. This has got worse with self-proclaimed “Brexitologist” Faisal Islam.

The Bank of England

This week the Bank of England will raise interest-rates again so let us start with the numbers from this morning from what is always its number one priority.

Net borrowing of mortgage debt by individuals decreased from £4.3 billion to £3.2 billion in December . Gross lending fell from £25.1 billion in November to £23.3 billion in December, while gross repayments were broadly unchanged at £21.0 billion.

It is simply bad luck for the research student who came up on the rota as presenting the morning meeting and they are probably already checking the job ads page. Such checks may get frantic after having to present this next bit.

Approvals for house purchases, an indicator of future borrowing, decreased to 35,600 in December, from 46,200 in November. This was the fourth consecutive monthly decrease in approvals for house purchases, and the lowest since May 2020.

Perhaps Governor Andrew Bailey may be concentrating on his morning espresso as this gets announced.

 If the onset of the Covid-19 pandemic and period immediately thereafter is excluded, house purchase approvals are at the lowest level since January 2009 (32,400).

Actually as this is the first time that the Bank of England has increased interest-rates on any scale ( the previous peak was 0.75%)  that is hardly a surprise. But inside the Bank of England we are looking at a situation where house prices are the one thing they can influence quite easily and then claim Wealth Effects. So they are no facing the opposite of that. On that road the hits keep coming.

The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 32 basis points to 3.67% in December, the largest monthly increase since December 2021, when Bank Rate increases began. The rate on the outstanding stock of mortgages increased by 12 basis points, to 2.50%.

With mortgage rates where they now are only those who have to remortgage will be doing so.

Approvals for remortgaging (which only capture remortgaging with a different lender) fell to 26,100 in December from 32,600 in November, the lowest level since January 2013 (25,800).

Unsecured Credit

I have to confess I was expecting more  borrowing here as a response to the increased cost of living whereas in fact we were told this.

Individuals borrowed an additional £0.5 billion in consumer credit in December, on net, following £1.5 billion of borrowing in November.. This was lower than the previous 6-month average of £1.2 billion.

The impact of that echoed further as I noted this.

The additional consumer credit borrowing in December was split between £0.5 billion of repayments on credit cards, the first net repayment since December 2021, and £1.0 billion of borrowing through other forms of consumer credit (such as car dealership finance and personal loans), the highest since October 2019 (also £1.0 billion).

In terms of the structure we can easily see why people would switch to personal loans if they can.

The effective interest rate on interest-charging overdrafts in December fell by 116 basis points, to 19.77%. Conversely, the effective rate on new personal loans to individuals increased by 29 basis points, to 8.16% in December. The effective rate on interest bearing credit cards also rose to 19.55% in December, from 19.24% in November.

But the lower total is interesting and will further concern the Bank of England.

Money Supply

We saw a further washing out of the September impact on these numbers.

The net flow of sterling money (known as M4ex) decreased to -£34.7 billion in December, from -£24.0 billion in November. This was mainly driven by net flows of non-intermediate other financial corporations’ (NIOFCs’) holdings of money decreasing to -£34.2 billion in December, from -£24.4 billion in November.

That brings the annual growth rate for broad money back to 2.7%. So we are seeing the brakes being applied by the Bank of England here.


These numbers are pretty consistent.We have a weaker mortgage market and money supply growth and maybe people unwilling to pay a higher interest-rate for unsecured credit. To my mind that again points to the Bank of England raising interest-rates by 0.25% this week rather than the 0.5% many still seem to expect. There is of course the US Federal Reserve in the meantime as a potential wildcard but I expect the same from them.

Meanwhile there is another cleat sign of inflation and indeed financial exhuberance around. Let us look at a timeline for receipts by Brighton football club.

At the time £50 million ( Arsenal) for Ben White seemed a lot

Then £62 million ( Chelsea) for Marc Cucurella seemed a lot

Now £75 million ( Arsenal) for Moses Caicedo is apparently not enough

There are successes here for The Premier League as a whole and for the transfer policy of Brighton which has been quite a profit centre. But there is quite a bot of inflation as well……



The German economy contracts as inflation picks up on both Spain and Italy

Last week ended with us looking at how the ECB was planning to apply the brakes more forcefully on the Euro area economy. We have a new context for this today as Germany released this.

WIESBADEN – The gross domestic product (GDP) fell by 0.2% in the fourth quarter of 2022 compared to the third quarter of 2022 – adjusted for price, seasonal and calendar effects.

We had our concerns but there has been quite an effort from the German government on the subject starting just under a fortnight ago.

“I’m absolutely convinced that this will not happen — Germany going into a recession,”  Scholz said Tuesday in an interview with Bloomberg Editor-in-Chief John Micklethwait.

Then last week we were told this via Bloomberg.

The German government expects Europe’s biggest economy to grow by 0.2% this year instead of the 0.4% contraction it predicted in October, according to people familiar with new forecasts to be published Wednesday.
The government downgraded its growth forecast for next year to 1.8% from 2.3%, according to the people, who asked not to be identified ahead of official publication.

People can of course forecast whatever they want and indeed they often do. But the narrative as presented here was.

Germany to Quash Recession Fears With 2023 Growth Forecast

This morning has brought a dose of reality to this rather than forecasts. Also the forecast above applied one of my rules where essentially the growth was taken from next year and given to this one. That is easy to do because by the time we get to 2024 there will have been new forecasts anyway and Hey Presto! this year looks better.

Breaking the numbers down

It looks as though an issue I have frequently raised ( the problem of falling real wages in the Euro area) came home to roost via consumption.

After the German economy held up well in the first three quarters despite difficult conditions, economic output decreased slightly in the fourth quarter of 2022. In particular, the price-, seasonally and calendar-adjusted private consumer spending, which had supported the German economy in the course of the year to date, was lower than in the previous quarter.

This means that if we look back there has not been much economic growth at all.

In a year-on-year comparison, GDP in the fourth quarter of 2022 was 0.5% higher in price-adjusted terms and 1.1% higher in price- and calendar-adjusted terms than in the fourth quarter of 2021. The difference to the non-calendar-adjusted value is also due to the fact that the fourth quarter of 2022 had an average of 1.2 fewer working days than in the same quarter of the previous year.

I am not sure how you get to 1.2 working days but anyway the picture is not materially changed by the 0.2.

We can take a deeper perspective because GDP was rebased at 100 in 2015 and is now after price and calendar adjustment at 107.7. So not a lot especially when we recall it includes a period that was described at the time as the Euro Boom. For newer readers Germany later had some downwards revisions which rather changed the picture.

Spain Inflation

We can continue our journey into the gap between perception and reality via this.

Spanish inflation on Monday expected at 4.7% – I see material downside risk to that number And guess what, Spain leads Europe by 2 months Inflation is falling off a cliff in Europe now ( @AndreasSteno)

4.7% would have been quite a number even for Spain which has managed to decouple from European gas prices to a large degree and thus seen lower inflation. There were many forecasts of lower inflation whereas yet again reality was somewhat different.

The estimated annual inflation of the CPI in January 2023 is 5.8%, according to the indicator advance prepared by the INE. This indicator provides a preview of the CPI which, if confirmed, would mean an increase of one tenth in its annual rate, since in the month of December this variation was of 5.7%.

So in fact rather than the sharp fall predicted and promised we saw a rise driven by the factors below.

This evolution is mainly due to the fact that fuel prices rise more than in January 2022, since the decrease in the prices of clothing and footwear is less than in the past year.

It seems that the experts missed the rise in fuel prices,although they did have this in their favour.

In the opposite direction, the drop in electricity prices stands out, greater than in January of 2022.

If we switch to the view of the ECB well they are perhaps wishing they had never played with the toy they call core inflation.

The estimated annual change rate of core inflation (general index without food not processed or energy products) increased five tenths, up to 7.5%.

At this point the ECB may well be mulling the words of the C+C Music Factory.

(Things that make you go hmmmm… ay)(Things that make you go hmm, hmm, hmm)Hmmmm…

Then Italy added some extra flavour.

In December 2022, industrial production prices increased by 2.9% on a monthly basis and by 31.7% on an annual basis (it was +29.4% in November). ( Istat )

So things accelerated rather than slowed  and this time around the main influences were domestic.

On the domestic market, prices grew by 3.8% compared to November and by 39.2% on an annual basis (from +35.7% in the previous month).

Combined with confirmation that so much of this has been energy related.

Excluding the energy sector, prices decreased by 0.1% compared to the previous month and recorded a growth trend of 11.2%, slowing down compared to November (+12.0%).

Lots of  people and indeed  businesses would like to exclude energy from their bills but sadly only central bankers can.


Today has shown how difficult the job of the ECB will be in 2023 as we have seen both a weaker economy ( Germany) and higher inflation ( Spain and Italy). Also the external environment does nit look particularly bright either.

Sweden’s GDP decreased by 0.5 percent in December, seasonally adjusted and compared with the previous month, as shown in the preliminary compilation of the GDP indicator. For the fourth quarter as a whole, GDP decreased by 0.6 percent, seasonally adjusted and compared with the previous quarter. ( Sweden Statistics )

Indeed Sweden is in a particularly rough run.

In December, GDP was 1.8 percent lower than in the corresponding month a year ago.

Fair play to them for showing the difference between the output and expenditure measures as this often gets swept under the carpet. Or more specifically into table so far down the release that few get there.

From the point of the ECB the interest-rate rises are yet to impact and it looks set to add another 0.5% later this week. So as I noted on Friday the monetary brakes are on with the money supply falling. Yet it acted too later to deal with the inflationary surge, which is ongoing. One thing we can be sure of is that Germany has seen economic events turn against it.

The German economy is back to its pre-pandemic *level*.  The US economy is back to its pre-pandemic *trend*, i.e. 5% above its pre-pandemic level in Q3. ( @fwred )


The ECB is slamming the brakes on the Euro area economy

Next week we get the latest policy announcement from the ECB for the Euro area and there is not much doubt over what will be announced.

One of them is that we, at this point in time, expect and judge that we will have to raise interest rates significantly. Now, what does that mean? You have to read it together with the steady pace. It is pretty much obvious that, on the basis of the data that we have at the moment, significant rise at a steady pace means that we should expect to raise interest rates at a 50-basis-point pace for a period of time.

That was President Lagarde precommitting the ECB for next week back at the December press conference. That was extraordinary in various ways not least because only a couple of months ago or so before she had abandoned Forward Guidance.

This left Executive Board Member Fabio Panetta in a spin earlier this week.

It was reasonable to increase rates in December and signal a similar step in February. But beyond February any unconditional guidance – that is, guidance unrelated to the economic outlook – would depart from our data-driven approach.

Fortunately for him the Handelsblatt journalists completely missed the fact that President Lagarde had already precommitted the ECB for 2 meetings.

Money Supply

This morning’s data release gives us a look at how the monetary sector has responded to the moves so far.

Annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, decreased to 0.6% in December from 2.4% in November.

I have picked out the narrow money measure because that is a guide to what is coming this year for late spring and early summer. As you can see there is a bit of a warning in it from the decline in the annual growth rate. In fact we see that over the latest 3 months it has fallen by 148 billion Euros then 100 billion and 112 billion in December. So we are seeing quite a hard contraction. As an aside cash ( currency in circulation ) has been flat and in fact literally zero over the latest 3 months. So as I have pointed out regularly it is much more in demand than the establishment likes to claim and of course is doing so when there is a cost to it via higher interest-rates.

Next up for longer-term trends is broad money.

Annual growth rate of broad monetary aggregate M3 decreased to 4.1% in December 2022 from 4.8% in November.

Let me illustrate how broad money works via looking back to 2020 when broad money growth went above 12% and had a sustained period over 10%. That signalled quite a push for nominal GDP and as economic growth has struggled for many years was always likely to lead to high inflation. We now know that my predictions at the time ( feel free to look back) that inflation was coming worked pretty much perfectly.

But now we see that not only is the annual rate falling quite quickly actual growth over the past three months has been a fall of 78 billion Euros. So in fact the nominal GDP forecast a couple of years ahead is flat or marginally negative.

Not Learning Anything

As I have just explained the seeds for the current inflationary burst were evident at the end of 2020. Now let me switch to the ECB version of events via Chief Economist Phillip Lane.

Let me, first, give you a reminder of the last 15 months or so. Inflation pressures were starting to build from the summer of 2021. So maybe the first meeting at which this was sufficiently visible in the data would have been December 2021. But December 2021 was also when the Omicron variant was emerging.

That was a reply to a question in the Financial Times about whether he was happy with the past couple of years. As you can see he has not only moved the goalposts they are on wheels as according to him nothing was visible until December 2021. Even then he has an excuse ready for failure.

Let me take you back to September 27th 2021. Unfortunately we cannot hear from Phillip Lane as he was caught in a scandal about him briefing large hedge-funds butt his boss ECB President Lagarde assured us of this.

many of the causes of higher prices are temporary.

So it wasn’t that the data was unavailable it was that the ECB dismissed it. Actually it gets worse in her next sentence.

When you look at what’s causing it, a lot of it has to do with energy prices. You look back a year ago, prices were rock bottom. They have of course moved up and the difference is explaining a lot of the inflation that unfortunately people are experiencing at the moment.

As you can see energy prices were an issue a long time before the war in Ukraine. It might things worse but there was already quite a big problem. I point this out because central banks keep trying to claim that the issue was only as a result of the war in Ukraine.

What we got from Phillip Lane was a rather desperate effort to deny reality.

So, what we did between December 2021 and June 2022 was focus on reducing QE, before starting to raise rates, in the knowledge that we could move relatively quickly once we started raising rates.

Imagine the manager of a losing football team trying this. I did not make any big changes as we kept losing as I was getting ready. But it gets worse as Chief Economist Lane now outright lies.

The debate about the exact timing is misplaced, because we knew that we could always catch up if it turned out that rates needed to be moved more quickly. In the end, where we are now is reasonable.

Even basic students of economics know that it takes time for interest-rates to impact and thus timing HAS to matter.


The situation is simply that the ECB made things worse by ignoring the incoming inflation storm and now seems set to continue tightening when the outlook is better. So they made it worse on the way in and now look set to do so on the way out. If we look at energy the situation looks better.

US natural gas futures fell below $3/mmbtu for the first time since May 2021 ( @SStapczynski )

Whereas the economic situation continues to have its problems.

Chemical maker Dow says it will shut down certain operations, “particularly in Europe,” as it confronts higher energy costs and a slowing economy ( @RefinedRachel )

I do realise that this comes at the moment that Euro area leaders are cheerleading for economic growth.

Germany to Quash Recession Fears With 2023 Growth Forecast

  • Government to publish forecast of 0.2% expansion this year
  • Economy Ministry had predicted contraction of 0.4% for 2023 ( Bloomberg)

But then of course they also told us there wasn’t going to be any inflation.




The Reserve Bank of Australia has problems all round as inflation rises again

Earlier this morning brought news which posed a few questions about economic policy. It came from a land down under where if people were willing to move their eyes from the Australian Open tennis there was this to mull.

The Consumer Price Index (CPI) rose 1.9 per cent in the December 2022 quarter and 7.8 per cent annually, according to the latest data from the Australian Bureau of Statistics (ABS).

It pretty much goes without saying these days that the forecasts were wrong but they were too low so something of a cosy consensus was replaced by this.

Michelle Marquardt, ABS head of prices statistics, said “This is the fourth consecutive quarter to show a rise greater than any seen since the introduction of the Goods and Services Tax (GST) in 2000. The increase for the quarter was slightly higher than the quarterly movements for the September and June quarters last year (both 1.8 per cent).”

So the inflationary push continued in broad terms and in fact picked up slightly. If we look back and ignore the tax change there has not been anything like this since December 1990’s figures. That means that the era of technocratic independent central banks is doing worse than the system it was supposed to replace. There will be some itchy shirt collars at the Reserve Bank of Australia this morning as they have already had to issue one apology. From the Australian Parliament last November.

 Senator McKim: Do you accept that you did in fact induce Australians to take out mortgages on the basis that interest rates wouldn’t rise until 2024? And do you think you owe those people an apology?

RBA Governor Dr Lowe : Well, I’m certainly sorry if people listened to what we’d said and then acted on what we’d said and now regret what they had done. That’s regrettable. I’m sorry that happened.

This is a significant issue because the whole point about Forward Guidance was that it was supposed to change people’s behaviour. Now when it is clear some did as they were effectively told it is a bit rich for Governor Lowe to mention caveats as he sings along with Luther Vandross.

I told my girl bye-bye (bye)And I really didn’t mean itSaid I met somebody new so fine (fine)And I really didn’t mean it

I will return to the RBA but let us first return to the details of the inflation numbers.#

Breaking it Down

One clear influence was that Australian’s were particularly keen to go on holiday and travel.

The most significant contributors to the rise in the December quarter were Domestic holiday travel and accommodation (+13.3 per cent), Electricity (+8.6 per cent), and International holiday travel and accommodation (+7.6 per cent).

“Strong demand, particularly over the Christmas holiday period, contributed to price rises for domestic holiday travel and international airfares,” Ms Marquardt said.

“The rises seen for domestic and international travel were notably higher than historical December quarter movements.”

Higher electricity prices are only a surprise in that in international terms the rises are not that high. Although it was the unwinding of subsidies that were the main influence and I note Western Australia had a different treatment to the £400 credit in the UK.

“The main factor influencing the rise in electricity prices was the unwinding of the $400 electricity credit offered by the Western Australian Government to all households last quarter. This was partially offset by the ongoing impact of the Queensland Government’s $175 Cost of Living rebate from September 2022, and the introduction of the Tasmanian Government’s $119 Winter Bill Buster electricity discount for concession households.”

We see that the march of basic products continued although there was some relief cia vegetables.

Food prices continued to rise, driven by Meals out and takeaway foods (+2.1 per cent) as dining establishments pass through rising costs for inputs including ingredients and labour. Vegetables (-10.2 per cent) partially offset the rise, as the effects of unfavourable weather earlier in the year eased.

There will as 2023 progresses be some relief to be found in the area below.

Growth in prices for New dwellings (+1.7 per cent) slowed relative to recent quarters (+3.7 per cent in September and +5.6 per cent in June) but remained stronger than historic norms.

“Labour and material costs are driving price growth in this area, with signs of material cost pressures easing,” Ms Marquardt said.

“Slowing demand for new dwelling construction was reflected in a lower quarterly rate of inflation for new dwellings this quarter compared with the past five quarters”.

On the other side of the coin I would be embarrassed to emphasise claims about “temporary” inflation changes after the disasters in this area over the past 18 months.

Underlying inflation measures reduce the impact of irregular or temporary price changes in the CPI. For the third consecutive quarter, annual trimmed mean inflation was the highest since the series commenced in 2003, increasing to 6.9 per cent, up from 6.1 per cent in the September quarter.

There is a relatively new monthly series and as you can see it just reinforced the troubling theme here.

Today the ABS also released the monthly CPI indicator for December. The monthly indicator rose 8.4 per cent in the 12 months to December, following annual rises of 7.3 per cent in November and 6.9 per cent in October.


The Reserve Bank of Australia finds itself in quite a pickle as it mulls the central banking equivalent of original sin. When to quote the famous phrase “the party got going” rather than taking away the punch bowl it continued with this.

But if I can just take you back to the situation we were facing in 2020 and 2021, the country was in a dire situation. At the Reserve Bank we wanted to do everything we could to help the country get through that. We also had a strong insurance mindset. We were thinking, ‘What could go wrong here?’ And the thing that could wrong was really, really bad. We were talking about 15 per cent unemployment, a generation of young kids not being able to find jobs, people not being able to go to school and university. It was a dire time.

That was Governor Lowe in Parliament last November. If we fast forward to now we can see what he has given them. We know know that inflation at the end of the year was of the order of 8% and the RBA thinks wage growth is this.

The Wage Price Index had increased by 1 per cent in the September quarter, to be 3.1 per cent higher over the year, slightly above the Bank’s forecast in November……….A range of more timely measures – such as recently lodged enterprise agreements and information from the Bank’s liaison – indicated that wages growth had continued to pick up in the December quarter.

Even if it rose to 4% then real wages were falling at an annual rate of around 4%. That is the problem for central bankers who have “saved us” by hammering real wages. Even worse they continue this illusion by talking of “Tight labour market conditions” when real wages tell a different story.

On the other side of the coin they pumped up asset prices leaving themselves with a loss and asset holders with large profits.

As a result, the Bank has recorded an accounting loss of $36.7 billion this year, which has reduced its equity to negative $12.4 billion.

Equity is no big deal when you are the currency creator. But will this piece of Forward Guidance be filed with the last one?

The Board expects that the Bank’s capital will be restored over time due to positive underlying earnings and capital gains when bonds mature.

They highlighted the 3 year yield as part of their Yield Curve Control. They drove prices extremely high ( yields approached 0%) and now they are a bit over 3%. That is a recipe for further losses not gains especially as its own funding rate is now 3.1%.


The UK Public Finances look much better in spite of a bad December

Today has brought us up to date on the UK Public Finances for 2022 and there was a lot going on in December. By that I mean even more than usual. We can start with a headline that does have some shock effect.

Public sector borrowing (PSNB ex) in December 2022 was £27.4 billion, the highest December figure since monthly records began in January 1993, largely because of a sharp rise in spending on energy support schemes and an increase in debt interest.

Whilst the number is high in many respects it is not that great a surprise as December is always a month where inflation linked bonds are relatively expensive and the energy support scheme is known, After all we are experiencing a cost of living crisis. Although some of the media have got rather excited as this from Tom Newton Dunn of Talk TV shows.

Horrific public finance figures this morning. Plus two thirds of Government’s total monthly borrowing – £17.3bn – was in debt interest. Close to double the entire Home Office annual budget, in just one month, gone in a blink.

He seems to think that that will happen every month. Let us take a look at to what the state of play is.


In fact the receipt side of the ledger was better than we had been seeing.

Central government receipts in December 2022 were estimated to have been £74.6 billion, which was £3.9 billion more than in December 2021. Of these receipts, tax revenue increased by £3.4 billion to £56.1 billion.

Income Tax ( PAYE ) at 9.7% and Corporation Tax at 11.5% were strong but VAT less so at 4.9%. There is of course quite a bit of inflation in these numbers but overall they were not the problem. One area of note is the housing sector as Stamp Duty fell from £1.9 billion last December to £1.5 billion this signalling lower activity and probably prices.

So the issue was on the expenditure side which is immediately apparent.

Central government bodies spent £91.2 billion on current (or day-to-day) expenditure in December 2022, which was £16.4 billion more than in December 2021.

We can start with the energy issue and my small part in the numbers below was £67 credited to my account at Octopus Energy.

This month sees the third round of EBSS payments, as shown on GOV.UK, with £1.9 billion of central government expenditure recorded as a current transfer from government to households,

Also the energy price guarantee and business help schemes are in play but are not explicitly priced. We do see that other subsidies rose by £4.8 billion which gives a broad guide.

But there is a fair bit more to find and we find it in interest costs.

Debt Interest

This rather catches the eye.

In December 2022, the interest payable on central government debt was £17.3 billion, the largest December interest payable on record and the second largest in any single month behind the £20.0 billion recorded in June 2022. Of this £17.3 billion, £13.7 billion reflects the impact of inflation on the index-linked gilt stock.

So whilst our conventional debt is getting more expensive ( A year ago the ten-year yield was around 2% lower than now) the impact is dwarfed by the surge in inflation. The numbers here are further complicated by the fact that much of this we have not actually paid and is instead a future liability.

This treatment of the uplift on the principal of index-linked gilts causes large differences between the cash and accruals recording of index-linked debt interest.

This is particularly noticeable in June and December each year and we see that the adjustment between cash and accruals in December was £13.7 billion. So that is added to our future liabilities ( National Debt) rather than being paid out now.

One area of note as it reflects the various strikes for example is that pay was only 3.6% higher than in the previous December so there have been heavy real wage falls over the past year.

The Office for Budget Responsibility. or OBR

The first rule of OBR Club that the OBR is always wrong had not only another good month but an especially good one.

Initial estimates for December 2022 show that the public sector spent more than it received in taxes and other income, requiring it to borrow £27.4 billion, £9.8 billion more than the £17.6 billion forecast by the Office for Budget Responsibility (OBR).

Our statisticians have tried to take pity on them.

Initial estimates for December 2022 show that the public sector spent more than it received in taxes and other income, requiring it to borrow £27.4 billion, £9.8 billion more than the £17.6 billion forecast by the Office for Budget Responsibility (OBR).

They did not seem to be aware of this which is not a luttle bizarre considering all their establishment contacts. Perhaps the wine and port had been consumed before this bit.

We will record the full impact of the changes to student loan arrangements when more definite estimates become available.

Actually the Student Loans issue is a shambles and I remain of the view it would be simpler just to write it off. After all back in the day when I went to the LSE the bill was paid by the state. Of course going forwards we would have to reduce the numbers going to university. The various Sir Humphreys would resist as they will have considered higher student numbers as a master stroke for the unemployment figures.

National Debt

We are potentially at a number of note.

Public sector net debt excluding public sector banks (PSND ex) was £2,503.6 billion at the end of December 2022, which was an increase of £132.7 billion compared with December last year……. public sector net debt at the end of December 2022 to 99.5% of GDP.

But in reality the activities of the Bank of England have rather distorted the numbers here.

Our measure of public sector net debt excluding the public sector banks and the Bank of England (PSND ex BoE) removes the debt impact of these schemes along with the other transactions relating to the normal operations of the BoE. Standing at £2,215.4 billion at the end of December 2022 (or around 88.0% of GDP), PSND ex BoE was £288.2 billion (or 11.5 percentage points of GDP) less than PSND ex.

A lot of this is the Term Funding Scheme which was £182 billion of the difference and is not really debt owed as most would understand it. There are assets held against it but they are ignored. So following the official approach will see our borrowing reduce markedly probably later this year and in 2024 when in fact little gas changed.


One of the lessons of the years and indeed decades I have followed the UK Public Finances is that it is a more complex issue than it first appears. That is not helped by official efforts to hide things and some bizarre decisions. I still recall the Royal Mail pension scheme being recorded as a gain when it involved a liability of over £10 billion.

This morning’s release shows both a big issue which is inflation and its impact. Although as I have explained it is more of a future rather than a present issue here. But also rather ironically suggests better times ahead for borrowing. This is because the improvement in wholesale energy prices means that the energy price support schemes are looking a lot cheaper from the spring. Yes that does mean another home run for the first rule of OBR Club. But it means that the path of UK borrowing is looking a lot lower which is why the UK bond market has defied the media and rallied this morning.

In spite of the fact that wind power is presently weak in a cold snap we seem to be getting through it as whilst 3 extra coal power stations were put on call last night they were not used. Actually it is France that is under more pressure so we may have been ready to help out. Some also seem to be willing to be cold and in the dark.

Some people will be able to earn money for cutting back on the electricity they use, again on Tuesday evening.

It is part of a scheme aimed at reducing demand during peak hours to avoid blackouts. ( BBC)

Although the BBC is probably hoping no-one replies by asking what happened to the plentiful cheap renewable power they have promised. Speaking of the BBC it is sad that I have to point this out but a day later its Home Editor Mark Easton has still not deleted the tweet which confused productivity with economic growth.

Whoops! That much-quoted ‘UK had the fastest growth in G7’ claim in 2021 turns out to be wrong. @ONS

admits a ‘manual error’. Growth was second SLOWEST.


Brazil would be “shackled to a corpse” if it launches a currency with Argentina

Even though we live in extraordinary times we still get developments that seem more appropriate for April the first and once of those came over the weekend. From the Financial Times on Sunday.

Brazil and Argentina will this week announce that they are starting preparatory work on a common currency, in a move which could eventually create the world’s second-largest currency bloc.

Once the shock of the announcement passes the next impression is the not a little hype in the claim it could be the “second-largest currency bloc” when it does not exist at all yet.

South America’s two biggest economies will discuss the plan at a summit in Buenos Aires this week and will invite other Latin American nations to join.

If I was Finance Minister in one of the other countries I would ask them to come back when it has been launched. As to the proposed gains well they seem also to be full of hype too.

The initial focus will be on how a new currency, which Brazil suggests calling the “sur” (south), could boost regional trade and reduce reliance on the US dollar, officials told the Financial Times. It would at first run in parallel with the Brazilian real and Argentine peso.

There is a potential positive here because a common currency might help regional trade especially for Argentina as its phases of currency weakness must make life uncertain and difficult. That closed for the weekend at 183 Pesos versus the US Dollar and had been ratcheting down 5 times last week presumably under central bank control giving up around a couple of Pesos in the process. According to Investing.com that is 76% weaker over the past year. Looking at a currency chart and going back 5 years we see it was more like 20. So yes there might be more regional trade.

However the going them gets a lot tougher because the impact on the US Dollar would overall be zero. Rather than paying in Real’s or Peso’s they would be paying in Sur’s so no change. There is one caveat to this in that should it work it may reduce demand for US Dollars in Argentina via it being a beacon of stability compared to the Peso. Although should the joint currency hit trouble then we could easily see Brazilians using the US Dollar as a store of value and trading unit too. As to starting by trading in parallel what does that achieve exactly?

What work has been done so far?

Apparently not much.

“There will be . . . a decision to start studying the parameters needed for a common currency, which includes everything from fiscal issues to the size of the economy and the role of central banks,” Argentina’s economy minister Sergio Massa told the Financial Times.
“It would be a study of mechanisms for trade integration,” he added. “I don’t want to create any false expectations . . . it’s the first step on a long road which Latin America must travel.”

As the Financial Times is a big fan of the Euro maybe they thought it was the place to go to.

A currency union that covered all of Latin America would represent about 5 per cent of global GDP, the FT estimates. The world’s largest currency union, the euro, encompasses about 14 per cent of global GDP when measured in dollar terms.

A starting point for this is how similiar are the economies?

Brazilian and Argentinian economic state of play

We can start by looking at official interest-rates.

In its 251st meeting , Copom decided to maintain the Selic rate at 13.75% pa ( BCB )

The Board of the BCRA has decided today to raise the monetary policy rate by 550 basis points. This way, the APR on 28-day liquidity bills (LELIQs) rose from 69.5% to 75%.

So Brazil left interest-rates at 13.75% in December whilst last September the BCRA raised them by 5.5% to 75%. So their last increase was more than treble the existing Brazilian rate. Last week that was not going well as we have already observed that they had to ratchet the Peso lower some 5 times. Anyway how do you merge that and bring a joint one and what would you decide? Obviously Argentina would love the Brazilian interest-rate that would feel like manna from heaven for borrowers. But there are all sorts of issues here.

If we switch to inflation we see this from Brazil.

Inflation expectations for 2022, 2023 and 2024 collected by the Focus survey are around 5.9%, 5.1% and 3.5%, respectively;

As we stand it is at 5.75%. Whereas Argentina saw 5.1% in December alone and was 94.8% in the previous year.

So again we see why Argentina would be keen as there are clear wins. The catch is how do we get there? Also there has to be a cost for Brazil. If we look at the wider economy the Buenos Aires Times tells us this.

With his characteristic powers of synthesis, De Pablo summed up the thinking of other private economists who consider the 2023 Budget projection of 60 percent annual inflation to be “fiddled” even if there is more agreement with its economic growth projection of two percent, owing to the “statistical lag effect” of last year’s five percent growth.

We already know that 2023 is off to a bad start. The extensive drought affecting much of the country has already halved the wheat harvest to 11.5 million tons, according to the Rosario Grain Exchange, while delaying the sowing of maize and soy.

The economic growth figures sound hopeful but if we look deeper we see this.

EyC thus forecast: “The GDP of 2023 will be similar to 2017 but five percent less in per capita terms and 11 percent below the 2011 peak.”

So Argentina is in trouble and how much depends on this.

We already know that 2023 is off to a bad start. The extensive drought affecting much of the country has already halved the wheat harvest to 11.5 million tons, according to the Rosario Grain Exchange, while delaying the sowing of maize and soy.

IERAL, the economic think tank of the Fundación Mediterránea, has warned that farm exports “would be lucky” to limit their losses to US$1.6 billion.

Actually I am always suspicious of countries reporting high growth ( 5% in this instance) with very high inflation as it is likely they are simply under recording the inflation situation. This is highlighted by this on the two very different exchange rates at the end of last year.

The street rate, known locally as the “dólar blue” or “blue dollar”, plunged to 357 pesos to the dollar on Thursday, according to the Dolarhoy.com website. The exchange rate, which is widely used to circumvent capital controls, fell nine percent last week. The official rate, tightly controlled by the Central Bank, is 176 pesos.

It is 372-376 today.

We can stay with the Buenos Aires Times for Brazil as at the end of last week there was this.

Brazil’s unemployment rate continued to fall in the three months from September to November 2022, hitting a new seven-year low of 8.1 percent, official figures published on Thursday showed.

It is the sixth successive rolling quarter that unemployment figures have fallen, reaching the lowest figure since April 2015.

Actually that is higher than the reported rate for Argentina of 7.1% but my point is that Brazil looks to be improving rather than getting worse.


As we look through the list of strengths in a currency union we know that political consensus helps. With 2 left-wing government’s in power things may have moved that way but things can change and government’s tend to veer from one side of the political spectrum to the other. Next is fiscal policy where Argentina is in the usual position of something which has been previously described by Christine Lagarde as a success.

The Executive Board of the International Monetary Fund completed today the third review of Argentina’s 30-month EFF arrangement, allowing for an immediate disbursement of about US$6 billion. ( December 22nd )

Monetary financing tends not to end well.

support a reduction in monetary financing of the fiscal
deficit (from 0.8 percent of GDP in 2022 to 0.6 percent of GDP in 2023 ( IMF on Argentina)

It is an ever declining situation for the debt in US Dollars as the declining Peso makes it more expensive to run and then refinance.

I have recently been watching The First World War on PBSAmerica and in it Germany considered its alliance with Austria-Hungary as being like being “shackled to a corpse”. For Brazil this looks like the economic equivalent.

Also as Brazil is one of the BRICs and we are told that is in the ascendant should they not be looking there?


Weak UK Retail Sales mean the Bank of England is less likely to raise interest-rates much more

After what has been a run of better news for the UK economy this morning has brought some weaker news.

Retail sales volumes are estimated to have fallen by 1.0% in December 2022, following a fall of 0.5% in November (revised from a fall of 0.4%).

That does back up one of my main themes as back on January 29th 2015 I pointed out this.

 However if we look at the retail-sectors in the UK,Spain and Ireland we see that price falls are so far being accompanied by volume gains and as it happens by strong volume gains. This could not contradict conventional economic theory much more clearly. If the history of the credit crunch is any guide many will try to ignore reality and instead cling to their prized and pet theories but I prefer reality ever time.

Thus high inflation is bad for retail sales and that is what happened on 2022. We saw struggles and then outright falls concluding with the 1% monthly fall in December. Also the theme goes beyond the UK because the numbers below are remarkably similar to what we looked at yesterday from the US.

Retail sales values, unadjusted for price changes, fell by 1.2% in December 2022, following a rise of 0.5% in November 2022.

This is a clear rebuttal of conventional economic theory that people will buy extra to get ahead of inflation driving prices higher. Indeed the UK’s statisticians sort of get around to my view because the period below is rather similar to the rise of inflation.

Sales volumes fell by 1.0% in December 2022, continuing a broad downward trend that has been seen since the lifting of hospitality restrictions in summer 2021.

The Breakdown

The release makes my point again.

Total non-food stores sales volumes (total of department, clothing, household and other non-food stores) fell by 2.1% over the month. There was continued feedback from retailers suggesting that consumers are cutting back on spending because of increased prices and affordability concerns.

It seems that fewer presents were bought this year.

Within non-food stores, the sub-sector of other non-food stores reported a monthly fall in sales volumes of 6.2% because of strong falls in cosmetics stores, sports equipment, games and toys stores and watches and jewellery stores.

This provided more bad news for the high street.

Department stores sales volumes fell by 3.1% in December 2022, from a rise of 2.1% in November. Retailers reported that longer Black Friday sales contributed to the November increase.

Food sales struggled too.

Food store sales volumes fell by 0.3% in December 2022 from a rise of 1.0% in November. Feedback from some retailers suggested that the November increase was because of customers stocking up early for Christmas.

With all the references to my theme it seems the ONS has been reading my work.

While sales values (amount spent) continue to increase, supermarkets have reported that they are seeing a decline in volumes sold (quantity bought) because of the increased cost of living and food prices.

Or to be more specific I knew that they did but it seems it has hit home to some extent.

Online sales were hit too.

The proportion of online sales fell to 25.4% in December 2022 from 25.9% in November, with feedback from some retailers suggesting that Royal Mail strikes led to consumers shopping in stores more.

With so much competition these days in the parcel space the Royal Mail strike seems likely to backfire. The postal service I get from them is really rather poor these days.

On the other side of the coin some disinflation can still work as I remember this from Wednesday’s clothing and footwear inflation numbers.

On a monthly basis, prices fell by 0.3% between November and December 2022.

This morning we were told.

Clothing stores sales volumes rose by 1.0% in December 2022

The Bank of England

The latest output from the Monetary Policy Committee is below via Bloomberg.

Bank of England policymaker Catherine Mann said government measures to fight climate change also can help lift productivity and the economy.
“Investment in a climate oriented strategy is you know, a twofer,” Mann said on a podcast from the Productivity Institute streaming on Thursday. “They can get to good outcomes. That is a critical way of thinking about how a private directed set of policies can promote both demand as well as supply.”

This is disappointing on several fronts. The first is simply that it is not true as the “climate oriented strategy” has contributed to inflation and made our economy worse. So we are back to central bankers preferring theory to reality. Also I consider her to be one of the more intelligent people on the Monetary Policy Committee so I fear for what some of the others think!

She sounds like an ideologue rather than someone looking at the evidence.

“Companies get signals that climate is a factor that’s important for consumers,” Mann said. “That it’s good for financial markets. If they get those signals, they will respond with investment and innovation.”

Mind you if I was responsible for such a policy error with inflation more than five times it target perhaps I would be looking for distractions as well.

Governor Andrew Bailey has also been giving us his thoughts.

Speaking at the manufacturing base of family-owned bakery firm Brace’s in Blackwood, Mr Bailey said the fall in the rate of inflation to 10.5% this month, following on from another slight decline in December was expected and was “the beginning of a sign that a corner has been turned.” ( Media Wales)

That was more grist for the mill that we will only get a 0.25% increase in interest-rates this time around especially allowing for this next bit.

“The other thing that has happened really in the last couple of months is that particularly energy prices have started to come off and gas prices quite a lot actually since the beginning of the winter. That isn’t actually yet feeding through, because of the way in which particularly domestic prices are calculated, but it will do……. It does mean there is more optimism now that we are sort of going to get through the next year with an easier path there (inflation).”

He still seems to think that the labour market is tight though and remains keen for others to have real wage falls.

“I have been in South Wales talking to firms and get a lot of stories, as I do when we go to other parts of the country, that even though activity in the economy has been quite weak in recent times, the labour market remains very competitive and that is influencing pay negotiations.”


So today has brought a more sobering update for the UK economy although I do not share the media’s apparent surprise. Inflation and the consequent real wage falls are bad for shoppers.

Between 2021 and 2022, retail sales volumes fell by 3.0%, as the lifting of restrictions on hospitality led to a return to eating out, and rising prices and the cost of living affected sales volumes.

Whilst it seems likely to be one of the weaker UK economic sectors it is something else for the Bank of England to mull. We see Governor Andrew Bailey admitting to a welcome forecasting error ( too high) for energy prices which has been reinforced by Cornwall-Insight.

Our latest forecasts for the Default Tariff Cap (price cap) have shown energy bill predictions for a typical household1 have fallen to £3,208 from April, decreasing further to approximately £2,200 for July-August (Q3 2023) and September-December (Q4 2023). These forecasts are around £300/year lower than our previous forecasts issued on 4 January due to the recent slide in wholesale energy markets.

On this road the promised interest-rate rises are disappearing pretty fast. Added to that is the UK Pound £ which has nudged US $1.24 a couple of times this week.