Economics

MoneyWeek magazine

Latest issue:

Magazine cover
Avoid the dinosaurs

Why smaller stocks are better bets

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Key trends: inflation

Inflation affects us all, one way or another. It lowers the value of money, and it's key to the cost of cash – otherwise known as the level of interest rates. Find out what each indicator suggests for UK inflation using the tabs below.

The UK bank rate

If the UK's bank rate (what we all used to call 'base' rate) rises, mortgage rates won't be far behind. That could mean higher mortgage payments for millions.

This chart will give you an idea of just how low the UK bank rate currently is. It shows the bank rate in red, and RPI minus the bank rate in blue going back to 1948.

In other words, RPI is about as high as it's been compared with the Bank's core interest rate since 1980. For how long can this continue?

CRB/Reuters food index

With around 11% of the UK CPI consisting of foodstuffs, this index is a useful indicator of future cost of living rises. Food prices are more volatile than changes in the overall cost of living.

The index rose by more than 10% over the last decade, but as of now, the index is about 3% higher year-on-year.

That could indicate that Britain's inflationary pressures are increasing for the moment.

Chinese inflation

Many of the goods we buy in our shops are made in China. So China's inflation rate is now a major determinant of the UK's cost of living.

For years, we've been used to paying lower prices on our Chinese imports. But soaring wages and pricier food drove up CPI in China, and that meant higher costs for British consumers.

Chinese inflation has slipped since 2011. August's Chinese CPI was up by 2.0% year-on-year.

The CBI MTE survey

This survey gives the latest snapshot of UK manufacturing trends. It's a handy guide to price pressures at the factory gate – and to CPI inflation.

For August, this sub-index stood at -1, ie, 1% more survey respondents expected their selling prices in three months' time to be lower rather than higher.

The index leads UK inflation by some two months. The broad downtrend suggests some inflationary pressure is easing for the moment.

The producer price index (PPI)

The 'output' PPI - often called the 'factory gate' price – measures what the UK's manufacturers charge their retail customers, who in turn sell on to us.

PPI output prices tend to be more volatile than consumer prices, but the overall trend is similar and they are a handy warning indicator.

August's output PPI was 0.3% lower year-on-year. The downtick in PPI suggests some inflationary pressure is easing for the moment.

UK average weekly earnings (AWE) index

If wages rise, employers try to pass these costs onto customers by raising prices, thus pushing up inflation. UK labour costs are rising.

July's AWE index shows total UK wages rising an annualised 0.6%.

A sudden jump in pay packets would add to inflationary pressures and could force a rate hike sooner than expected.

The BRC Nielsen shop price index

This is a key indicator of what's happening to prices in Britain's shops. So it's a very handy guide as to what to expect from UK CPI inflation.

In August, the BRC Neilsen Shop Price index was down 1.6% year-on-year. It tends to be 1-2% below UK CPI.

The latest uptick in the SPI suggests inflationary pressure in Britain is increasing.


Why do we want wealth?

Without the selfish genes, the value of money disappears, says Bill Bonner.

Dodgy IFAs are the tip of an iceberg

Anyone who thinks the financial services industry is beyond reproach isn’t looking very hard, says Merryn Somerset Webb.

Is this the worst single investment in the United States of America?

Bill Bonner explains why owning a château is not all it’s cracked up to be.

Four reasons to fear ballooning government debt

When the financial markets wake up to the real state of Western governments’ finances, it won’t be pretty. Bengt Saelensminde explains why, and how to protect your wealth.

Why businesses need to be in the government's good books

Any business that draws criticism from consumers or governments needs to watch out, says Merryn Somerset Webb.

What investors can learn from Bill Gross’s bombshell and Tesco’s troubles

The shock resignation of Bill Gross – head of the biggest bond fund in the world – and the mess that Tesco is in show that management really does matter.

The next independence referendum – should we stay in the EU?

Ignore warnings European firms will flee if Britain leaves the European Union, says Matthew Lynn – it’s happening already.

Talk about ringing a bell

The great lumpen-investoriat is panicking, says Bill Bonner.

The West Bromwich question

Following the Scottish independence referendum, the ‘West Lothian-West Bromwich problem’ needs an urgent answer, says Simon Wilson. But is there one?

Britain must act on Isis

David Cameron’s options on military intervention in Iraq and Syria are running out. Matthew Partridge reports.

Showing page 1 of 689

Sign up for Money Morning and get our FREE thought-provoking investment email every weekday morning to become a smarter investor.
Sign up here