It’s hard to know what’s worth highlighting these days when it comes to inflation in advanced economies.
Every week there’s fresh evidence (voluminous evidence) of mounting and/or persistent price pressures.
The saving grace (for central banks, anyway) is that longer run expectations remain a semblance of anchored. That’s according to both consumer surveys and market-based measures. But that’s small comfort for people who need to eat and clothe themselves in the meantime.
On Wednesday, the latest read on inflation out of the UK showed consumer prices surged 5.5% in January, a fresh 30-year high (figure below).
“This is the highest CPI 12-month inflation rate in the National Statistic series, which began in January 1997,” ONS remarked, casually. “It was last higher in the historical modeled series in March 1992.”
You’ll recall that the BoE’s latest forecasts, which accompanied the first back-to-back rate hikes since 2004, projected inflation above 7% in the spring.
The figure (below) shows why it’s impossible to take seriously the notion that economics is a “science.”
As I put it a few weeks ago, despite being spectacularly wrong so far, the BoE expects the public to trust a new set of forecasts which claim for the Committee the kind of supernatural prescience one would need in order to project a macro variable three years into the future.
Bloomberg on Wednesday dryly noted that UK inflation will likely hit 7% “when a 54% surge in energy bills is due to take effect at the same time as taxes go up.” Wage growth, meanwhile, is less than 4%. For the umpteenth time, Rishi Sunak claimed to “understand the pressures people are facing with the cost of living.”
On the bright side (and by contrast), price pressures in China abated materially in January, data out Wednesday suggested. CPI rose just 0.9% last month, below consensus (figure below).
PPI inflation slowed to 9.1%, which very nearly matched the lowest estimate from three-dozen economists.
In addition to providing the PBoC leeway to ease further in an effort to bolster the slowing economy, cooling factory-gate inflation is good news for consumers in other locales.
The situation in the world’s second largest economy is no one’s idea of optimal, but notwithstanding headwinds from Xi’s (at times farcical) efforts to tame unruly capital and refashion wayward sectors of the economy to fit his “common prosperity” project, you could argue that China is in a better place economically than the West. Again: That assessment comes with all the usual caveats.
Anybody notice that the fires out west have already started? How about tornadoes in February? How many people are prepared to drive their current gas guzzling transportation to the junk yard and to ante up big bucks to replace them with EVs? Climate change is ramping up and will create havoc for the food industry for years to come. Each successive year being worse than the one before. Everyone should be looking at having a victory garden in their basement under grow lamps. Wake up.