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Saturday 20th January 2018
Hi Friend,
Inflation takes the biscuit ...
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Inflation CPI eased back to 3.0% in December. The worst appears to be over. Or is it? Most analysts expect inflation to ease back to 2.4% by the end of 2018. It's a fair bet, though it may be slightly ambitious.
Goods inflation increased to 3.5% in December. Food inflation hit 4.1% but fish lovers were paying 9% more for the catch. Coffee addicts were shelling out nearly 10% more than the same fix, same time last year. Still smoking... that'll be nine per cent plus. Want to heat the house, you will be paying 6% extra. Using electricity, why that's up by 11% year on year. Planning to leave the house, transport costs are up by over 4%. Stay at home, read a book there's a 5% tariff this year. Time to renew the insurance policies, then allow 6% extra for that.
So what does this really mean? It means inflation is endemic in the system. Don't be mislead by the headline number. The apparent fall in CPI inflation was achieved by a perceived fall in service sector inflation to 2.5%. Can that really be right?
Producer prices in the UK increased to 3.3% in December from 3.1% prior month. Food prices increased by over 5%. Yes inflation does take the biscuit. McVities cut the pack size of digestives from 500g to just 400g. All to preserve a precious price point for household incomes under pressure. Manufacturing input prices increased by just 4.9% from over 7% prior month. The fall had been expected. Sterling has rallied from the post referendum lows, oil prices have rallied but further gains are unlikely given the advances in US shale output.
There
is some suggestion the fall may allow the MPC to pass on further rate
hikes this year. Do not plan for that. The Fed is expected to hike rates
at least three times this year. The US tax bill will flatter growth but
increase the fiscal and trade deficits. The dollar is weakening. US ten
year bonds are trading at 2.6% plus. The US bond market is well along
the path to normalization as UK gilts languish at just 1.3%. Trump may
talk tough on trade with China but hints of a Sino inspired bond strike
could out further pressure on bond yields and on short rates. The MPC
will probably follow with at least two rate increases this year despite the concerns about Brexit.
Ironic this week Boris Johnson announced ambitions for a bridge with Europe across the Channel. Oh the irony. Jacob Rees-Mogg explained he is not in favour of a transition period to bridge the EU deal but would be in favour of an implementation period. In and out. Leaving Europe not leaving Europe. Building bridges not trenches. Implementing not transitioning. Time to check the small print ... as always ... the riddle of Rashomon rules ... Schrödingers cat is sitting on a packet of chocolate digestives this week-end ...
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So what of retail sales ...
The riddle of retail appeared to bamboozle the ONS this week. Headlines tell the story ... retail sales fell by 1.4% in December compared to prior month. Don't get too alarmed. Compared to December 2017, sales volumes were actually up by 1.4%. In value terms retail sales increased by 4.4% prior year. A healthy increase sustained over the full final quarter of the year.
The changing pattern of retail is changing the pattern of sales in the run up to Christmas. Long gone are the days when retail would hold off price cuts until the January sales. The January sale moved to Boxing Day. Blue Cross days pulled the cuts before Christmas. Then came the internet, Black Monday and Cyber Friday pulled the discounting and the volume into November.
Yet even in December, on line sale were up by 9%, accounting for 18% of retail activity. Clothing sales were up by 21% account accounting for almost one in five transactions. On line food sales were up by 12%, taking one in twenty transactions with a 5.5% share.
It's a mixed bag on the high street. Waterstones and Halfords offered strong results. Carpetright announced a profit warning. Next and Kingfisher shares took a hit. Primark bucked the tends with good sales growth. Bonmarché shares fell 20 per cent as the fashion retailer warned of difficult market conditions. Overall sales in the final quarter fell by 6.9% in like for like sales despite a near 30% surge in on line sales.
Lies, damn lies and seasonal adjustments are forcing radical readjustments to the ONS data. Don't be too alarmed by the headlines, like for like sales spending increased by 4.5% in the final quarter of the year. That's assuming we have captured all of the significant data ... and made the correct seasonal adjustments ...
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West Wing WTF ... Trump goes to Davos ...
Trump is off to Davos next week. No one must have explained you can't drive a golf cart in a snow drift. He might as well, the federal government shut down last night. No agreement on the spending bridge because of White House intransigeance on immigration.
Democrats have struggled to resolve the legal status of
immigrants, known as “dreamers,” brought to the country illegally as
children.
Crisis in Hawaii this week. An errant alert went out to scores of Hawaii residents and tourists on their cellphones: “BALLISTIC MISSILE THREAT INBOUND TO HAWAII. SEEK IMMEDIATE SHELTER. THIS IS NOT A DRILL.” A more detailed message scrolled across television screens in Hawaii, suggesting, “If you are indoors, stay indoors. If you are outdoors, seek immediate shelter in a building. Remain indoors well away from windows. If you are driving, pull safely to the side of the road and seek shelter in a building or lay on the floor.”
No problem for the President. He was playing golf at the time. Advice to the President in nuclear crisis, get off the golf cart and lie on the fairway with a phalanx of secret service guys laying on top.
So what will President Trump say in Davos. Make America Great Again, the perils of globalisation, the problems with multilateral deals. There is no such thing as global warming, (it will be minus 4 degrees c in Davos next week). There will be much bragging about the great achievements in his first year in office. He will talk of his popularity and how many times he has featured on the front cover of Forbes magazine.
He may omit to mention the $130,000 paid to a porn actress just before the election. She would beat him naked with a rolled up copy of Forebes magazine with him on the front cover allegedly!
Will he stick to the script? Will there be a script? While speaking at the "March for Life" anti-abortion rally at the National Mall on Friday, Trump said, "right now, in a number of states, the laws allow a baby to be born from his or her mother's womb in the ninth month. It is wrong, it has to change." Yes it's true. The President is now anti birth no matter race or colour! [To be fair he meant to say "torn" not "born" it' an easy mistake! but why was he speaking at the rally in the first place?]
White House Chief of Staff John F. Kelly told Democratic lawmakers Wednesday that some of the hard-line immigration policies President Trump advocated during the campaign were “uninformed,” that the United States will never construct a wall along its entire southern border and that Mexico will never pay for it, according to people familiar with the meeting.
The comments were out of sync with remarks by Trump, who in recent days has reiterated his desire to build a border wall that would be funded by Mexico “indirectly through NAFTA.” The half life of John Kelly at the White just had a significant nuclear deterioration.
No time to talk of the President's medical. Trump is in excellent health. Seventeen stone, on the brink of obesity with a fast food diet and severe cholesterol scores to boot ... He may live to be 200 years old said the over enthusiastic Dr Ronny Jackson from the Walter Reed National Military Medical Center. And we thought it was just three more years in office to worry about ...
That's all from the West Wing WTF this week. Much more to follow, let's face it, there is so much material to work on ... Have a great week-end, .
J
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