Investment planning update: May Inflation numbers

 

Investment planning

• May inflation numbers
• Government borrowing data reach two unhappy landmarks

 

May inflation numbers

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3, RO4, RO5, RO7, RO8)

The CPI for May showed an annual rate of 0.5%, down 0.3% from April and broadly in line with market expectations, according to Reuters. Across April to May prices were flat, whereas they rose by 0.3% over the same period last year. The CPI is now back to the level last seen in June 2016.

The CPI/RPI gap narrowed to 0.5%, with the RPI annual rate sinking from 1.5% to 1.0%. Over the month, the RPI was down 0.1%.

The Office for National Statistics (ONS)’s favoured CPIH index was down 0.2% for the month to 0.7%.

As a result of the COVID-19 pandemic, there were 74 items in the CPIH ‘shopping basket’(or 14.2% of the CPIH basket by weight) that were  not available to consumers in the UK, from a pint of beer in a pub to a High Street manicure. The ONS highlights the following as the more significant of the moves across the month in the areas it could monitor:

Downward

Transport: The largest downward contribution came from transport, where the price of motor fuels fell this year but rose a year ago, contributing 0.12% to the easing in the headline rate. However, that downward contribution was partially offset by smaller upward contributions from road transport services and second-hand cars.

Recreation and culture: The downward contribution of 0.08% from recreation and culture came as prices overall fell by 0.1% between April and May 2020, compared with a rise of 0.5% between the same two months a year ago.

Restaurants and hotels: This a category where the ONS was heavily reliant on estimates, given the impact of the pandemic. It says that prices overall were estimated to have increased by 0.4% between April and May this year, compared with a larger increase of 0.8% between the same two months a year ago.

Health: Prices overall fell by 1.4% this year compared with a rise of 0.2% a year ago. The effect came from pharmaceutical products, particularly pain killers and antihistamine tablets, and other medical and therapeutic products, particularly daily disposable soft contact lenses. This could reflect a better demand/supply balance.

Upward

Food and non-alcoholic beverages: The largest, partially offsetting, upward contribution came from this sector, with prices rising by 0.5% this year compared with a smaller rise of 0.1% a year ago. Annual CPI inflation in this category is now 1.8% against 0.5% a year ago.

In nine of the twelve broad CPI groups, annual inflation decreased, while two categories posted an increase and the remaining one was unchanged. The category with the highest inflation rate remains the Communications category at 4.0% (down from 4.2%).

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) fell 0.2% to 1.2%, again underlining the impact of the energy price falls on the main index. Goods inflation fell from -0.4% to -0.9%, while services inflation was down 0.1% at 1.9%.

Producer Price Inflation was -1.4 % on an annual basis, down 0.7% on the output (factory gate) measure. Input price inflation rose slightly to -10.0% year-on-year, a 0.2% increase from April. The main driver here was crude oil and petroleum prices. 

Source: ONS 17/06/2020

Government borrowing data reach two unhappy landmarks

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3, RO4, RO5, RO7, RO8)

The number 100 figures in two key elements of the latest set of public sector finance numbers.

The Public Sector Finances data released by the Office for National Statistics (ONS) on Friday 19 June underline why the Government is so anxious to accelerate the economy’s return to ‘normal’ conditions:

• The public sector net borrowing requirement (PSNBR) in May 2020 is estimated to have been £55.2 bn, which the ONS wryly notes is ‘roughly nine times … more than in May 2019’. The Office for Budget Responsibility(OBR) uses another, slightly less damning comparison, observing that the figure was ‘£5.2 billion higher than market expectations’.

• Combine the initial two months for this financial year and you arrive at the first 100: the deficit so far in 2020/21 has exceeded £100bn – reaching £103.7bn, to be precise. That is £87bn more than for the same period in 2019/20 and higher than any full year borrowing since 2013/14. However, it is £13.8bn below the OBR’s reference scenario.

• One other small ray of good news is that the April borrowing figure was revised down by £13.6bn, a change which the ONS says is ‘largely because of stronger than previously estimated tax receipts and National Insurance contributions and lower expenditure than previously estimated associated with the Coronavirus Job Retention Scheme’. Note that word ‘estimate’. First release numbers are always estimates, and, in current conditions, that is more than traditionally so.

• Overall Government debt rose by £62.5bn to £1,950.1bn – ‘just under £2.0 trillion’, as the ONS said, probably readying us for ‘just over’ next month. That figure leads to the second 100: debt as a percentage of UK GDP is now 100.9%. The last time that particular century was scored was back in 1962/63, but then the ratio was still on its way down from a post-World War 2 peak of 258%.

• As far as financing is concerned, the ONS notes without comment that the QE-induced increase in gilt holdings by the Bank of England during May ‘…is of a similar order of magnitude to the new issuance by the [Treasury] in May 2020, which means that gilt holdings by units other than the [Bank] have changed very little since April 2020’.

Perhaps it is best to just quote the OBR: ‘[The] data highlight the gathering fiscal impact of the coronavirus crisis, but the numbers will be prone to revision. It will be many months before the true scale of the shock becomes clear’. 

Source: ONS 19/6/20; OBR 19/6/20