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Inflation - Global Economics Weekly
Global Economics Weekly Brief
UK inflation hit the 2.0%y/y target in December 2013 for the first time in more than four years. In the US, inflation crept up to 1.5%, still well below the Fed’s objective.
And in the euro zone, inflation fell to 0.8%, leaving it in the economic equivalent of a separate time zone from the European Central Bank’s desired 2.0%. Among the major economies, only Japan is experiencing rising inflation but its 1.2% rate is hardly cause for celebration. It is hard to see central banks raising interest rates any time soon!
Does UK inflation have further to fall? Consumer prices rose 2.0%y/y in December 2013, down slightly from 2.1%y/y in November. It was the first time since November 2009 that inflation had hit the Bank of England's target. The sharp fall in inflation in the last six months has prompted renewed speculation about the dreaded d-word - deflation (or falling prices). But that talk seems misplaced. For now it's just low inflation, which is good news for households. Although the squeeze on their incomes remains, it's slightly less intense. Major issues for the future will be, motor fuel, energy (gas/electricity), local government taxes and other products rising rapidly year-on-year!
Wallets wide open. Retail sales (excl. fuel) jumped a massive 6.1%y/y in December 2013 - the fastest rate of growth for nine years, as consumers splashed the cash (credit cards) for Christmas. December's boost also meant 2013 achieved the best annual retail sales growth since 2007. Rising employment (mainly part-time) means there is a bit of extra income circulating around the economy and lower inflation is helping to make the pounds go just that little bit further. Consumers continue to embrace the digital age with online sales up 11.8%y/y in December and a third of department store sales made via the internet. Domestic borrowing is now at the high of £1.3 billion!
UK Total Government Debt
Current – Historical – As Percent GDP
Current UK National Debt Numbers
Gross National Debt
* Future National Debt is estimated by HM Treasury.
Recent and Budgeted UK Total Government Debt
Debt in billions
Debt in Percent GDP
Click HERE briefing on Total Government Debt.
For numbers and more click here. The two charts show above show recent and planned gross debt for the UK government. On the left is a chart of the debt in current pounds sterling. On the right is a chart of the debt as a percent of Gross Domestic Product (GDP).
Bubbling along. UK house prices rose 5.4%y/y in November according to the Office for National Statistics (ONS), well ahead of income growth. The familiar regional disparity was on show again, prices rising fastest in London (11.4%) and slowest in the North West (0.6%). RICS’ survey suggests prices will keep rising. The number of surveyors saying prices will increase exceeds those expecting a fall by the greatest margin since 1999 and the ratio of house sales to stocks hit its highest level since 2007. Surveyors are also doing their bit to boost productivity, with sales per surveyor three times their March 2009 low point. When will the bubble burst again?
US industrial production bodes well for Q4 growth. Industrial output finished 2013 strongly, growing by 0.3% in December. Output is now 3.7% higher than the end of 2012, raising expectations of a good GDP number when the first estimate is released at the end of January. News that the private sector continues to grow strongly will be well received at the Federal Reserve, but there were also some causes for concern. Spare capacity continues to fall, with industry now running at 79.2% of potential, just 1% below its long-run average. So room for future growth without inflation is diminishing. A big issue is unemployment which is rising again!
Europe’s engine of growth? Preliminary estimates suggest German GDP expanded by 0.3% in the last quarter of 2013, below expectations. Full-year growth came in at 0.4%, weaker than in 2011 and 2012. Indeed, this was the worst figure for GDP growth since 2009 when the economy shrank by 5.1%. Contrasting with the caricature of Germany’s economy, growth was led by domestic demand rather than exports, as the recession in the rest of the euro zone weighed on activity. France is in very deep trouble with rapid unemployment, companies going bust at a rapid rate with social unrest at a very high level!
Snaking along. 2013 was largely the Year of the Snake in China and that was a decent reflection of the economy’s performance. Output grew by 7.7%y/y, the same rate as in 2012. However, growth slowed slightly in the final quarter as the effects of the earlier government stimulus on investment and industrial production waned. That said, investment accounted for more than half of the nation’s output as China continues to find it difficult to wean itself off capital-intensive growth. China`s economy is slowing down and this will impact globally!
Do not blame the weather. You’ll often read that retail sales have fallen or risen because of the weather. It is the ‘go-to excuse’ for a surprising result, either good or bad. Well, according to the ONS, it’s a pretty lame one. Having examined the impact of weather events the statisticians concluded that, “In terms then of the retail sector’s sensitivity to the weather, past periods show a mixed picture with no clear relationship between the two.” Many people now buy goods over the internet and retail shops are of the past!
* Europe as a very serious issue with rapid unemployment especially with the youth in `every` country that impacts daily!
European Youth Unemployment = 24% and rising rapidly
UK Youth Unemployment = 20% and rising rapidly
400,000 Graduates came on to the market last year in Europe
960,000 = Under 25`s are unemployed in the UK
Only one in ten school leaves takes up an apprenticeship in the UK
European Youth Unemployment to rise by another 10% + over the next 10 years
Watch 2014 globally very closely!
* `10-Step Double-Dip Recession Survival Guide` - click on the connection below for comprehensive information.
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Inflation - Global Economics Weekly from Colin Thompson.
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