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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 the early 1980s. 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 11% lower year-on-year.

That could indicate that Britain's inflationary pressures are decreasing 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. May's Chinese CPI was up by 1.2% 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 June, this sub-index stood at -7, ie, 7% 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 inflationary pressure is falling 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.

May's output PPI was 1.6% lower year-on-year. The downtrend in PPI suggests 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.

May's AWE index shows total UK wages rising an annualised 1.0%.

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 May, the BRC Neilsen Shop Price index was down 1.9% year-on-year. It tends to be 1-2% below UK CPI.

The overall downtrend in the SPI suggests inflationary pressure is easing in Britain for the moment.


The balance of power is shifting away from property owners

Right-to-buy, populist land-grabs and other dodgy deals demonstrate how power is being taken away from property owners and handed to tenants, says Merryn Somerset Webb.

What Mr Market is whispering

One interesting thing has slipped from the lips of Mr Market, says Bill Bonner. Bonds have topped out.

How would a Grexit affect Britain?

Greece will vote on Sunday whether to accept the latest bailout offer. Matthew Partridge looks at how a Grexit would affect Britain – both our economy, and our EU membership.

Anatomy of a Grexit: how Greece would go about leaving the eurozone

Jonathan Loynes and Jennifer McKeown, economists at Capital Economics, look at the key issues and challenges of a Grexit, and explain how it might be best managed.

Greece: is this it?

The Greek debt crisis is coming to a head as Greece shuts down its banks and imposes capital controls. John Stepek looks at what’s happening, and asks if we’re looking at ‘Europe’s Lehman Brothers moment’.

The case for taking an axe to tax credits

With £12bn of welfare cuts on the horizon, tax credits look set to take the hit. What are they? And what effect will slashing them have? Matthew Partridge reports.

What you missed at the MoneyWeek conference

Our annual investment shindig took place on 12 June. It was a fantastic day – John Stepek reviews some of the highlights.

The pollsters keep getting it wrong – and that matters for investors

Recent elections polls have been way off and that’s making it harder to invest, says Matthew Lynn. Chances are, it’s only going to get worse.

Chart of the week: Switzerland easily shoulders the strong franc

Switzerland has gone from strength to strength in spite of its rising currency.

The 'out of Europe' lobby deploys its trustiest weapon

The biggest gaffe made by Britain’s pro-Europeans is being exploited by the ‘out of Europe’ lobby, reports Emily Hohler.

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