British Inflation Marching to a Faster Beat

September 12, 2017

The U.K. is not displaying the subdued inflation found in most other developed economies. The August batch of British price data revealed a 0.6% monthly advance in total consumer prices and an acceleration of its 12-month increase to 2.9% from 2.6% in both June and July. Core CPI inflation rose 0.3 percentage points (ppts) to 2.7% and exceeded expectations by 0.2 percentage points. Retail price inflation accelerated 0.3 ppts to 3.9%, and core RPI went up 0.2 ppts to 4.1%. Producer price output inflation climbed 0.2 ppts to 3.4%, and producer input inflation of 7.6% in August was 1.4 ppts greater than July’s result. House price inflation in July was 5.1%.

Evidence is accumulating that the advent of Brexit is depressing British growth while lifting inflation, the latter trend resulting from sterling’s slide from $1.50 just before the Brexit referendum in June 2016. The end of this month will complete a quarter of the 2-year allotted time schedule for negotiating Britain’s exit from the EU, and nothing substantial has yet emerged from this process.

The dollar fell 0.8% against sterling overnight. Higher U.K. inflation means the Bank of England may have fewer degrees of freedom to offset weakening British growth, and it implies more elevated British interest rates.

Long-term interest rates advanced overnight. 10-year sovereign debt yields climbed 4 basis points in Germany and 3 bps in both the U.K. and Japan.

The dollar rallied Monday on relief that property damage from Hurricane Irma is going to be much less than predicted and from North Korea standing down, at least temporarily, from provocative missile testing. But today, the dollar appears to be running out of steam. Besides the aforementioned slide against sterling, the U.S. currency has also weakened 0.7% relative to the kiwi, 0.2% versus the peso and 0.1% vis-a-vis the yuan. Appreciation overnight versus the yen, Swissy, euro and loonie has been 0.3% or less.

The retreat of gold has been more persistent. The yellow metal, a natural haven against natural disaster risk, fell another 0.6% to $1,327.90 per ounce. And with damage to gulf refineries less than feared, WTI oil has settled back 0.3% to $47.94 per barrel.

Following Monday’s rally in North American equities, stocks overnight rose 1.2% in Japan, 0.9% in India, 0.6% in Australia, and 0.4% in Taiwan and Hong Kong. Gains in Europe thus far amount to 0.8% in Greece, 0.7% in Switzerland, 0.6% in Germany and France and 0.3% in Spain and Italy. But the British Ftse is off 0.3%.

Small business sentiment in the United States according to the NFIB index edged up 0.1 point to a 6-month high of 105.3.

While Australian business conditions according to the NAB index rose a point in August to +15, which matches June’s high for this year, business confidence sank 7 points to +5, which is a low for 2017.

Other countries also reported consumer price data. In the year to August, such rose 2.3% in Sweden, 1.1% in Portugal, 0.5% in Cyprus, and 1.2% in Romania.

Retail sales in the year to July increased 2.6% in Turkey and 1.8% in Singapore.

Industrial production was 8.2% greater in July in Romania than a year before but posted a 1.5% decline over the same 12 month period in Mexico.

Both the German leading and coincident indices of economic indicators stagnated in July.

French employment rose 0.4% on quarter during 2Q17, a tad less than forecast. The Italian jobless rate was 11.2% at midyear, while Danish unemployment climbed to 4.5% in July from 4.3% in June.

Apple’s latest I-phone gets released today. It’s only been a decade since the first I-phone was unfolded. Perhaps no other development has been as responsible as smart phone technology for the social and economic tensions currently around the world.

The U.S. Labor Department’s monthly index of job openings, hires, and separations will be reported today.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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