Latest inflation figures

17th September 2010

Simon Ward, chief economist at Henderson Global Investors, says the alternative Retail Prices Index (RPI) would give a far better measure of the state of the nation's purse strings.

According to the RPI figure, clothing and footwear prices fell 1.7% in the year to August, but the RPI figure shows they rose by a hefty 6.3%.

Had the RPI figure been used, then Ward, who predicts inflation will be at 4% by the end of the year, says the headline rate would have been 3.5%-3.6% and not 3.1% as the Treasury announced.

Ward says: "A non-technical explanation is that the CPI assumes that consumers are expert at shopping around for best value – so expert that they can obtain the same volume of clothing and footwear as a year ago while reducing their spending by 1.7%, despite a 6.3% rise in label prices.

"This stretches credulity.

"If the same volume could be bought for 1.7% less, it would be reasonable to expect total cash spending on clothing and footwear to be little changed from a year ago.

"Retail sales figures, however, show a 6.4% rise in turnover in textile, clothing and footwear stores in the year to August.

"Based on the 1.7% CPI fall, this suggests an increase of 8.2% in the volume of purchases – implausible when overall consumer spending has been growing weakly."


Is 4% inflation on the cards?

8 thoughts on “Latest inflation figures”

  1. Anonymous says:

    Hi Shaun
    I found some good news : retail sales in South Africa are up ! Also, Finance Minister Noonan of Ireland seems to be forming alliances in Washington with the aim to reduce the bail-out interest rates and cut loose some senior bondholders….under the radar whilst Greece takes the headlines. Interesting that Noonan is looking for help outside the Eurozone.

    1. Anonymous says:

      Hi Shire
      We did also have some better unemployment and employment figures in the UK as well. With so much happening there wasnt really an opportunity to get onto them. 

      I hope that Noonan persists with that policy as it is somethig that should have happened as soon as the problems became very serious in Ireland’s banks. This version of “zombie” banking where shares and bonds trade as if they have a value after a bank is discovered to be effectively valueless has been a bad influence on events in my opinion. It creates a mirage where things appear to be better than they are and accordingly delays reform.

  2. James says:

    It does feel like the end game now. The popular press is now cottoning on to the fact that the Greek tragedy cannot be solved by lending more.
    Poor old Greeks

  3. Forbin says:

    sorry Shaun,   if you can’t have QE3  then what is the solution to this debt crisis ?

    go bust ?   ( well I think we all know the OECD countries are all bust )  no

    then what?

    1. Anonymous says:

      There is no easy solution to excessive borrowing. If repayment using austerity is unworkable, then you keep borrowing until the lenders stop lending. At this point the government runs out of money and a nasty crash occurs. If the government has it’s own currency and prints more money, then expect hyperinflation and devaluation. In December 1996 the Bulgarian communist party caused hyperinflation. Over 90% of the population could not afford food or fuel in winter with temperatures of -15. Savers and pensioners had their money become worthless.  Inflation is not always a benign way of shrinking your mortgage. Zimbabwe dollar, Weimar Republic are other examples.

      I note that the economy of Latvia is bouncing back after a tough bout of austerity and a hard recession, where Greece seems to be digging an ever deeper hole with other people’s tax money.

      Some OECD countries are financially solvent, they are not all as indebted as Britain or the USA.

  4. Mr_kowalski says:

    As for QE3, there are rumors of strong resistance from a number of quarters; several respected commentators have suggested that it won’t happen again. My view is that if the US prints a negative employment report and equities begin tanking in a serious way, there will be increasing howls from many (especially the Obama Administration) to pull the trigger. I’m thinking by the ides of September we’ll see some form of QE– here’s a ZH link to an article quoting PIMCO’s Bill Gross on something he’s calling “Operation Twist”–

    1. Anonymous says:

      Hi Mr.K
      The original Operation Twist was something tried at the time of the JFK administration in 1961 and continued until 1965. Here is a change in the times the first amount was US $500 million and yes that is million!

      The Fed in essence sold shorter-term securites and bought longer-term ones to control/reduce their yield.This was the “twist” of the name in that it wished to change the shape of or twist the yield curve.

      It is getting a few mentions often by people who treat in an almost mystical manner which surprises me as a review of it in the early 1970s by Benjamin H. Beckhart concluded.

      “long-term interest rates cannot be substantially reduced by money market gimmicks”

      And other research concluded that its effect were small and that the fall in long-term interest-rates that took place would have happened anyway…

      However a paper written for the Federal Reserve in 2004 thought the policy could work if done on a larger scale. I raise his because one of the authors was one Ben Bernanke!

      “If the Federal Reserve were willing to purchase an unlimited amount of aparticular asset, say a Treasury security, at a fixed price, there is little doubt that it could establish that asset’s price.

      Presumably, this would be true even if the Federal Reserve’s commitment to purchase the long-lived asset was promised for a future date.Conceptually, it is useful to think of the Federal Reserve as providing investors inthat security with a put option allowing them to sell back their holdings to the centralbank at an established price.”

  5. Mr_kowalski says:

    Hi Shaun– seems that you English are partially to blame for the troubling slowdown in EU interbank lending– this comes from the Guardian:

    “Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to eurozone banks, raising the prospect of a new credit crunch for the European banking system. Standard Chartered is understood to have withdrawn tens of billions of pounds from the eurozone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks. Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal.”

    ZH is also following a similar story for China:

    Somehow I think this will all calm down; the IMF will simply give Greece the money no matter if anything meaningful is done and will give the flimsiest of excuses. The real reason is to buy time for Eurozone banks to steel themselves for the inevitable. 

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