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Saturday 18th February 2017
Hi Friend,
Inflation Surge in 2017 ... as Full Employment Looms ...
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Inflation CPI basis increased to 1.8% in January. The main contributors to the increase were motor fuels and food. Clothing and footwear costs fell, reducing the overall inflation impact in the start to the year. Transport, Education and the Leisure sector continue to push prices higher. The figure was slightly lower than analysts expected. They won't have long to wait.
Service sector inflation increased by 2.6% from 2.5% in December. Goods inflation, increased by 1.1% up from 0.7%. Last year the comparison figure was negative minus 1%. Such is the swing in just twelve months. Price inflation is exacerbated by the depreciation of Sterling and the effect of rising commodity prices, especially oil. Oil price Brent Crude basis closed at $55.52 last week. The average price in January last year was $32.18.
Inflation is set to spike over the next few months. Manufacturing prices are on the rise. Output prices in the manufacturing sector increased by 3.5% in January. Input costs by over 20%. The inflationary impact of oil price rises adjusted for currency is set to double the cost denominated in sterling. We expect producer input costs to increase by over 30%, output costs to rise by over 5%. The inflation spike will push retail prices to over 3%, well above the MPC target.
CPIH,
including a measure of housing costs,
will become the favoured measure of reporting from next month. CPIH increased by 2% in January. In the U.S. Janet Yellen has affirmed U.S. rates may rise again in March. In the U.K. interest rates at just 0.25% are incompatible with inflation on the rise and widening U.S. spreads. The latest employment data confirms a further fall in unemployment and an unemployment rate of 4.8%. Remember forward guidance? When an unemployment rate of 7% was the perceived trigger level for a rate rise ...
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Economic news this week .. Full Employment ?
The latest employment data released by the ONS, confirm the strong growth in the jobs market is continuing. December unemployment fell to just under 1.6 million, a rate of 4.8%. The January claimant count fell to 750,000, a rate of 2.1%. The levels are lower than experienced prior to the downturn in 2008.
Vacancies increased to 748,000 in January. The pre recession peak in February 2008 was 704,000. In January the number of vacancies was equal to the claimant count.
So is there a skills mismatch? Service sector recruitment is most difficult, especially in wholesale, retail, distribution, accommodation, restaurants, food, the health sector and social care. We measure the vacancies against employment in the sector. In construction, the ratio is 1.3%. In manufacturing, the ratio is 2.0%. In the service sector overall the ratio is 2.3%. In health and social care the ratio is almost 3.0%. In accommodation and food, the ratio is almost 4%.
It
is too easy to talk of a skills gap but many high vacancy sectors are
relatively low skilled. The jobs market is near full employment. Filling vacancies is difficult. No time
to be sending foreign workers home from within the E.U. or without ...
So what of earnings? Despite low unemployment and a high vacancy rate, for the moment, earnings remain subdued. Earnings, in the three months to December, increased by 2.5%. In the construction sector, pay increased by 6.5%. A stark contrast to public sector wage increases of just 1.5%.
Once inflation starts to rise, will earnings respond given a tight jobs market? Probably. Then perhaps the MPC will make a move ... at last ...
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West Wing ... Whisky Tango Foxtrot ...
Best show in town is Saturday Night Live "Life in the White House", bettered only by White House life itself. Last week,
"Mad Dog" Mattis was out soothing nerves in Japan and South Korea.
This week Mattis and Tillerson were deployed to Europe, assuaging fears about the U.S. commitment to NATO and Europe. Fair warnings were offered to the Russians about expansionist ambitions in the Crimea, Ukraine, Belarus and the Baltic States. The U.S. is committed to NATO as long as the subs are paid by all member states. "Pay up or the marines might not turn up", the message in the event of Russian invasion. American diplomacy at it's best. It was never overly nuanced.
While the grown ups were out of the country, President Trump held a News Conference. The first as President of the U.S.A. The President made it clear he had inherited a "mess". Mess in the White House, mess in the U.S.A, mess in the world. A mess. A terrible, catastrophic, chaotic, disastrous, mess. Chicago, well parts of Chicago, were worse than danger zones in the Middle East. How the tourist board and inward investment teams would love that. www.choosechicago.com? Not at the moment thanks.
The good news, the White House is running like a "fine tuned machine" said the President, I "inherited a mess but I am going to fix it, all of it". Excellent. Aware of the risk of nuclear war and basic elements, the President explained "a nuclear holocaust would be like no other". Of uranium? "Uranium the stuff that makes nuclear weapons and you can do some bad things with". Reassuring.
Is the President coping with the rôle? Trump explained he is having a great time. Loved by the people of America, hated by the press, the dishonest press with the false, horrible, fake reporting and fake news. CNN and the failing New York Times were singled out for treatment, along with NBC, ABC, CBS. Even the BBC took a bashing at the news conference.
The President was thrown by a question about the CBC, obviously a news station he hadn't heard of. CBC stands for The Congressional Black Caucus, explained April Ryan of American Urban Radio Networks. "Do you know them" asked the President "Are they friends of yours" It's a fair question, April Ryan is a black American after all. "Do you want to set up a meeting?" asked the most powerful man in the Western World running a fine tuned White House machine. Diary management not a strong point perhaps.
And what of the leaks? The White House is leaking like a BP oil well in the gulf of Mexico. "The leaks are real the news is false", the President explained, in inexplicable conundrum. "The tone is hatred, anti Trump hatred". "The fake news media is not my enemy, it is the enemy of the American People" said the President.
Tomorrow you will all say "I was ranting and raving ..." yep nothing fake about that .. the baffled press duly obliged ... White House - Whisky, Tango, Foxtrot ... for this week...
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So what happened to Markets?
Markets, were up the Dow closed at 20,555 from 20,262. The FTSE closed at 7,299 from 7,258.
Sterling slipped against the Dollar to $1.242 from $1.250 and was down against
the Euro to €1.169 from €1.174. The Euro moved down against the Dollar at 1.062 from 1.065.
Oil Price Brent Crude closed at $55.52 from $56.76 The average price in January last year was $32.18.
UK Gilts
- yields moved down. UK Ten year gilt yields closed at 1.21 from 1.27. US
Treasury yields slipped to 2.41 from 2.42. Gold closed at $1,237 from
$1,233
John
That's all for this week. Don't miss the pro-manchester Business Conference in March. We focus on Digital Disruption and the Smart City Challenge. Sponsors Samsung will be demonstrating the latest in virtual rally, plus we have the latest on robotics, AI and autonomous vehicles.
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