Today the focus switches back to the UK at the end of what has been a long hot week if not the long hot summer that The Style Council sang about. The official release brought some good news.
Retail sales volumes increased by 0.5% between May and June 2021, and were up 9.5% when compared with their pre-coronavirus (COVID-19) pandemic February 2020 levels.
I am not sure that such an erratic series can be described as a type of old reliable but it has been the area that has demonstrated a V-shaped recovery. Remember those who told us the whole economy would do that? Well they are hoping you have forgotten.
The shape got damaged by later lockdowns but whenever they had the chance the UK consumer came out to play. This is an example of some of the savings that were built up being spent.
Breaking it Down
The driver was food sales which swung heavily between May and June.
Food store sales volumes increased by 4.2% in June 2021, following a decline of 5.5% in the previous month, when consumers had switched some food spending to hospitality as some restrictions in that sector were relaxed. Feedback from some retailers suggested that sales were positively boosted in June by the start of the Euro 2020 football championship.
If the area around me was any guide plenty of alcohol was sold too. Outside of that area we saw a different picture.
Non-food stores as a whole saw monthly sales volumes fall by 1.7% in June 2021, following strong growth in previous months.
In fact we seem to have by-passed this year’s summer sales or perhaps they have been postponed if we stay with football analogies.
Household goods stores reported a monthly fall in sales volumes of 10.9% in June 2021, driven by falls in furniture stores and electrical household appliance stores. The Bank of England Agents’ summary of business conditions for Quarter 2 (April to June 2021) notes that transportation delays have resulted in shortages of some items, such as furniture and electrical goods……..Clothing and department stores also reported monthly declines, of 4.7% and 3.6% respectively.
The catch-all category showed very strong growth but as you can see there is a lack of detail.
Other non-food stores (such as chemists, toy stores and sports equipment stores) reported monthly growth of 8.6% driven by strong growth in second-hand goods stores.
With more places open this was inevitable.
Online spending values fell in June 2021 by 4.7% when compared with May 2021, with all sectors except clothing stores reporting monthly falls in their online sales…….This resulted in a decline in the proportion of online retail spending values, which fell to 26.7% from 28.4% in May 2021.
But it remains much higher than before with all that implies for physical stores and the high street.
However, this is higher than the proportion of online retail spending in February 2020 (pre-coronavirus (COVID-19) pandemic) of 19.9%.
We do get a reading on this from the numbers because the amount spent in June was up 113.1 on last year but the volume increase was 109.7. This leaves us with an inflation rate of the order of 3.1% which gives us another warning as well as another problem for the official inflation numbers.
These suggested that UK economic growth continued into July but was affected by what has become called the pingdemic where the NHS app has pinged so many for self-isolation it has left some businesses short of staff.
At 57.7 in July, the headline seasonally adjusted IHS Markit / CIPS Flash UK Composite Output Index registered above the 50.0 nochange value for the fifth consecutive month…….. However, the latest reading was down from 62.2 in June and the lowest since the easing of lockdown restrictions began during March.
As an absolute measure they have been a poor guide and in manufacturing actually misleading so make of that what you will. One area they should be able to get right is inflation pressures.
Average cost burdens increased at the fastest pace since the survey began in January 1998, fuelled by a steeper rise in the service sector. This was linked to wage inflation, higher transport bills and price hikes by suppliers. Manufacturers also recorded another rapid upturn in purchasing prices, but the rate of inflation eased from June’s all-time high.
Bank of England
Yesterday we heard from Deputy Governor Ben Broadbent and there is a link to the above as well as my description of him as the absent-minded professor.
So with numbers like these perhaps it’s not surprising to see inflation going up, here and in other countries. In the UK, annual CPI inflation has risen from ½% to 2½% in the past four months.
Actually it has been a surprise to him as the Bank of England did not predict it.This is what we were told as recently as February.
As temporary effects fade and the impact of spare capacity diminishes over 2021, inflation rises towards the target.
Also after Brexit he told us he follows PMIs which led him in the wrong direction back then and this time he seems to have missed their inflation warning.
He deploys the usual central banking response which is to move the goal posts, Usually that involves looking a different measures but that cannot have worked so his staff will have been dispatched to change the time frame.
Over the past year and a half as a whole, so including that initial drop, headline and core CPI
have both risen at an average (annualised) rate of 1½-1¾%, a little weaker than pre-pandemic rates.
Ben has a go at claiming he has been right.
And shifts in spending of this sort, at least until (and unless) they’re met by matching shifts in supply, tend to push up
But then no he didn’t
In January, I felt that these mismatches would probably get ironed out over time.
After all this he concludes that one day it will end although he does not know when.
And in many of these markets supply looks to be reasonably
“elastic”, at least over the medium and longer term: it responds positively to higher prices, ensuring a degree
We are already being warmed up for his conclusion.
Along the way we see confirmed a point that many of you have made.
One important place to look will be wage growth. That’s also the place where any “second-round” effects of
the current inflation, via higher expectations for the future, would both appear and most matter.
I do hope Ben raised the issue below with his former colleague Dr. Martin Weale who botched a review of the average earnings figures and left us as described.
Unfortunately, the headline wage numbers are currently beset by a host of distortionary effects.
Ben misses out the fact that the self-employed are excluded as are those at smaller businesses. Still I suppose having been involved in the botching of the RPI Review I guess he feels he would be throwing stones in a glass house.
What is he going to do about it?
And if this was only a story about global goods
prices – and depending how confident you were in its transitory nature – I think the answer could well be
There is much that is familiar about the speech from Ben Broadbent. The first is that he has been wrong again but expects us to take his view on the same subject seriously. Next is the effort to pick out an individual area.
Most of the overshoot relative to target in the latest CPI numbers – more than all of it, on some measures –
reflects unusually strong inflation in goods prices.
At some point that will probably fade but he ignores the fact that other areas may take its place. No doubt when they do we will be told they are unusually strong. Rince and repeat. Next is the shift in timing that I regularly report on. When the pandemic hit the response was immediate but when we have inflation now it switches to.
I’m not convinced that the current inflation in retail goods prices should in and of itself mean
higher inflation 18-24 months ahead, the horizon more relevant for monetary policy.
As a final point as an external and thereby supposedly independent member he should never have been promoted to Deputy-Governor. It sets us all the wrong motivations as those appointed to bring diversity find that being a good boy or girl can be very remunerative. No wonder we get so many unanimous votes.