Don’t worry about the finer details of the Autumn Statement, says Bengt Saelensminde. As far as your investments go, it doesn’t change much.
- The bank rate
- Oil price
- Food prices
- The China effect
- Manufacturing prices
- Factory gate prices
- Shop prices
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?
Oil price in US$
Oil in US$ had risen sharply since 2009. Then last year, the oil price fell. The price of oil did rise again since then, but the cost of US crude is now £60/barrel, about 1% higher than at the start of 2011.
October UK CPI was up 2.2% year-on-year; down from 2.7% the previous month. Meanwhile, RPI was up 2.6% on a year ago, compared with 3.2% in September.
Oil prices lead year-on-year percent changes in our cost of living by around three months. A rising oil price may see inflation rise further.
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 of now, the index is in fact down around 15% year-on-year.
That could indicate that Britain's inflationary pressures are easing for the moment.
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 had been steadily driving up CPI in China and that meant higher costs for British consumers.
This year has seen Chinese inflation start to creep up again - October's Chinese CPI was up by 3.2% year-on-year - which will add to Britain's inflationary burden.
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 November, this sub-index stood at 5, ie,5% more survey respondents expected their selling prices in three months' time to be higher rather than lower.
The index leads UK inflation by some two months. The latest uptick suggests some rising inflationary pressure in Britain 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.
October's output PPI was 0.8% higher year-on-year. This latest downtick in PPI suggests some inflationary pressure in Britain is easing.
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.
September AWE index shows total UK wages climbing an annualised 0.7%.
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 November, the BRC Neilsen Shop Price index was down 0.3% year-on-year. It tends to be 1-2% below UK CPI.
The downwards trend in the SPI suggests inflationary pressure in Britain is easing for the moment.
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