The Office for National Statistics calculates a 1.8% increase in the headline Consumer Price Index in the 12 months ending 31 January. That’s up from just 1.3% in December and as close to the 2.0% target as makes no difference, at least in my mind. Meanwhile, core inflation – which excludes more volatile price changes in the energy sector and in those things you might enjoy on a night out like food, fags and booze – similarly quickened, rising from 1.4% in December to 1.6% in January.
It’s tempting to suggest that the pickup in the pace of inflation all but eliminates the chance that the Bank of England moves to reduce Bank Rate at its next meeting of the Monetary Policy Committee (MPC). But that’s not reflective of prices in the bond market today.
Of course, there are two reasons why the Bank might still consider a cut to be appropriate. The first is that January’s uptick might be a blip, and inflation might mosey back toward the lower bound in the 1.0-to-3.0% range.
The second, and this is a factor simultaneously weighing on bond markets in the US, eurozone and Japan too, is that the central bank might consider it necessary to support activity during a coronavirus-induced lull. That is why, in the UK for example, the bond market’s estimate of a March rate cut increased, rather than decreased, even as news of near-target inflation was disseminated.
As it stands, we are not forecasting a change in Bank Rate when the MPC next meets, scheduled for the 26 March. But a lot can change in the space of a month.
The Office for National Statistics also released their estimate for the rate of unemployed among those British citizens considered to be ‘economically active’. The most recent data covers the three months to the end of December and reveals joblessness at 3.8% – the same rate, incidentally as that measured in the prior three three-month periods.
The economic inactivity rate, incidentally, measures 20.5%; meaning that around a fifth of people living in the UK between the ages of 16 and 64 have not sought work in the last four weeks and/or are unable to start work in the next two weeks. That always seems like a high number to us, until we realise just how many students there are and just how much looking after children require. Other reasons for economic inactivity include those temporarily sick, long-term sick, early retirees and a generally very small percentage of ‘discouraged workers’.
The same report also contains an estimate for wage growth in the last 12 months or so. 2.9% represents a slowing pace of growth compared with the prior number, but it still comfortably outpaces inflation.
That’s good news for the British economy and provides a reasonably firm footing the for the push into the year ahead.
USA MANUFACTURING OUTPUT
Less good news is contained in the IHS Markit Flash US Composite PMI report for February. Analysis contained therein indicates that US output stalled during the month. Chris Williamson, the firm’s Chief Business Economist, notes that ‘weakness was primarily seen in the service sector, where the first drop in activity for four years was reported, but manufacturing production also ground almost to a halt due to a near-stalling of orders’. The evidence suggests that ‘GDP growth [slowed] from just above 2% in January to a crawl of just 0.6% in February’. That’s a worry, but there is cause for some optimism… ‘the February survey also saw a notable upturn in business sentiment about the year ahead, reflecting widespread optimism that the current slowdown will prove short-lived’. Let’s hope that’s the case.