{"id":4665,"date":"2023-06-03T11:52:47","date_gmt":"2023-06-03T11:52:47","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=4665"},"modified":"2025-03-27T15:50:39","modified_gmt":"2025-03-27T15:50:39","slug":"uk-inflation-dont-panic","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=4665","title":{"rendered":"UK inflation: don’t panic"},"content":{"rendered":"

Market reaction to UK April CPI numbers focused on the overshoot of headline and core inflation relative to forecasts, ignoring a continued slowdown in headline price momentum. <\/p>\n

The six-month rate of increase of headline prices, seasonally adjusted here, fell to 6.6% annualised in April, the slowest since September 2021 and down from a peak 12.6% – see chart 1. <\/p>\n

Chart 1<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

Six-month headline momentum is tracking a simplistic “monetarist” forecast that assumes a two-year lag from money to prices and the same “beta” of inflation to money growth as on the way up. <\/p>\n

This forecast suggests a further decline in six-month momentum to about 5% annualised in July on the way to much lower levels in late 2023. <\/p>\n

The projection of a fall to 5% or so in July is supported by a bottom-up analysis incorporating the announced 17% cut in the energy price cap that month. <\/p>\n

Markets were spooked by annual core inflation reaching a new high of 6.8% in April but it is normal for core to lag headline at turning points. <\/p>\n

The April result, moreover, is consistent with a mean historical lag of 26 months between peaks in annual broad money growth and core inflation: money growth continued to rise into February 2021 – chart 2. <\/p>\n

Chart 2<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

The suggestion that core inflation is at or close to a peak is supported by PPI data: core PPI output inflation usually leads and has slowed significantly from a May 2022 peak – chart 3. <\/p>\n

Chart 3<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

PPI data also indicate that CPI food inflation is peaking and could fall rapidly over the remainder of the year – chart 4. <\/p>\n

Chart 4<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

—–
\nCOMMENT:
\nAUTHOR: David Cotton
\nEMAIL:
\nIP: 78.129.191.50
\nURL:
\nDATE: 05\/31\/2023 09:20:45 AM<\/p>\n

Near negative nominal broad money growth is what should spook markets!<\/p>\n

—–
\nCOMMENT:
\nAUTHOR: Mitchell Neale
\nEMAIL: mitchell.neale@vpwm.co.uk
\nIP: 81.79.218.111
\nURL:
\nDATE: 06\/03\/2023 11:52:47 AM<\/p>\n

Take a look at the velocity of money and a very different conclusion would be reached.<\/p>\n","protected":false},"excerpt":{"rendered":"

Market reaction to UK April CPI numbers focused on the overshoot of headline and core inflation relative to forecasts, ignoring a continued slowdown in headline price momentum.  The six-month rate of increase of headline prices, seasonally adjusted here, fell to 6.6% annualised in April, the slowest since September 2021 and down from a peak 12.6% […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-4665","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4665","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4665"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4665\/revisions"}],"predecessor-version":[{"id":6974,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4665\/revisions\/6974"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4665"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4665"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4665"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}