We remain in the part of the month that is rich with UK economic data and this morning we received something we have not seen for a while.
The Consumer Prices Index (CPI) rose by 9.9% in the 12 months to August 2022, down from 10.1% in July.
I think it was September last year that we last saw a fall in the annual rate of inflation although sadly it turned out to be transitory and it soon resumed its upwards march. This mornings news will have been particularly welcome at the Bank of England with a research student rushing to tell the Governor. This is because yesterday’s inflation news from the United States led to expectations from some that there would be a 1% interest-rate rise this time around. Having delayed the UK interest-rate decision by a week was looking as if it may have gone from a piece of masterly inaction to an own goal.
What caused the move?
A major player was the decline in the oil price from its peaks which led to this.
The easing in the annual CPI rate into August 2022 was driven by contributions from 4 of the 12 divisions, with the largest downward contribution of 0.37 percentage points coming from transport, particularly motor fuels (0.33 percentage points).
The recent peaks for Brent Crude Oil futures of US $120 per barrel in mid June and US $100 towards the end of July were replaced in August by numbers mostly below US $100. This fed through into a 17 pence per litre fall in the price of petrol which was the largest mover ( I presume some version of the diesel shortage is ongoing as it fell by less).
Although we are given little official detail it looks to me as if this was also a month where we saw something which pops up occasionally which is the discounting of computer games.
Due to games, toys and hobbies, where prices overall fell this year but rose a year ago, with the main downward contributions coming from computer games.
So these were the brakes on inflation. However care is needed as we also note this.
On a monthly basis, CPI rose by 0.5% in August 2022, compared with a rise of 0.7% in August 2021.
In terms of simple arithmetic that would give us an annual inflation rate of 6% and a bit more with compounding. The factors that are the drumbeat behind this are below.
This was partially offset by smaller upward contributions from food and non-alcoholic beverages (0.06 percentage points), clothing and footwear (0.05 percentage points) and miscellaneous goods and services (0.05 percentage points).
Having started with some better news for the Bank of England it comes with a problem for them. For years they have promoted the view of core measures of inflation which exclude food and energy. Yet the current burst of inflation sees energy as the main player and food also a significant factor.
The Cost of Living
The UK only has one cost of living measure which sadly seems to be news to most of the media and it is below.
The all items RPI annual rate is 12.3%, unchanged from last month.
As you can see it did not see a fall although at least it did not rise. The variant the Bank of England targets did see a fall though.
The annual rate for RPIX, the all items RPI excluding mortgage interest payments (MIPs), is 12.2%, down from 12.3% last month.
Although do not tell that to anyone with a mortgage because another way of putting that is that mortgage costs are rising.
However I would also point out that a strength of the RPI is that it measures housing costs which people actually pay. So for example it has been recording rises in mortgage costs which have been very strong some months for obvious reasons. It also includes house prices via a depreciation component.
UK average house prices increased by 15.5% over the year to July 2022, up from 7.8% in June 2022. This is the highest annual inflation rate the UK has seen since May 2003.
As you can see there continues to be quite a bit of action here although the more in the annual rate would be described by Chic like this.
One, twoAh, freak out!Le freak, c’est chicFreak out!
This is down to the Stamp Duty moves last year.
This jump in annual inflation was mainly because of a base effect from the falls in prices seen this time last year, as a result of changes in the stamp duty holiday. Average UK house prices increased by £6,000 between June and July this year, compared with a fall of £13,000 between the same months in 2021.
However there was still a £6000 rise on a monthly basis which represents a monthly move of just over 2%. These are unusual times to day the least as one might reasonably expect the rises in mortgage rates we have just noted to be having an impact. There are reports of the typical mortgage rate being 4% and yet we are still recording house price rises and this time around a large one. I cannot help but feel we are at the stage where Wily E Coyote pursues the Roadrunner over the edge of a cliff and briefly remains suspended in thin air. But he seems able to levitate like he is Michael Jordan for now.
Also I would point out that via the measures above the RPI is recording the cost of living crisis. Whereas we are supposed to believe via the Imputed Rent fantasy that this is the state of play.
Private rental prices paid by tenants in the UK rose by 3.4% in the 12 months to August 2022, up from 3.3% in the 12 months to July 2022.
According to them the one oasis in this time of inflation is the housing market.
Producer Prices
There was some better news here as well.
Producer input prices rose by 20.5% in the year to August 2022, down from 22.6% in the year to July 2022.
Producer output (factory gate) prices rose by 16.1% in the year to August 2022, down from 17.1% in the year to July 2022.
So we also see a decline in the annual rate of inflation plus this time around a fall in the monthly rate which is even more welcome.
On a monthly basis, input prices decreased by 1.2% and output prices decreased by 0.1% in August 2022; this is the first time the monthly rates have been negative since August 2020 and September 2020, respectively.
It has been a while.
Much of the change is the fall in the price of crude oil. But there were some other declines in the input series so let us cross our fingers for some more of that.
Comment
Finally we have at least a flicker of some better news on the inflation front. Whilst much of this is simply the lower oil price with Brent crude futures at US $93 per barrel as I type this we remain in that situation. Other parts of the news are more complex though and having raised the issue of measuring housing inflation there is this. I have already show how the RPI measures this, now look at the number we are supposed to believe.
Private rental prices paid by tenants in the UK rose by 3.4% in the 12 months to August 2022, up from 3.3% in the 12 months to July 2022.
Yes if you follow the officially promoted CPIH inflation measure then the one oasis at a time of raging inflation is the housing market! Best of luck actually taking advantage of it though or as The Who put it.
Then I’ll get on my knees and prayWe don’t get fooled againDon’t get fooled again, no, no