Here is the Director’s weekly news for this week:
Economic News
Barclays Economic Update: The headline CPI inflation rose to 2.9%$ (y⁄y) in May’17 from 2.7% (y⁄y) in Apr’17 and stood above-consensus forecast. The improvement was supported by volatile and core components. Core inflation was even stronger than consensus forecast, rising to 2.6% (y⁄y) from (2.4% y⁄y) previously. At the core level, the growth was supported by both services and non-energy industrial goods components. Within core non-tradables, recreation and culture rose by 0.9% (m⁄m) compared with a decline of 0.4% a year ago, consistent with annual growth of 2.3% and a 0.20pp contribution to the change in the headline y⁄y rate. Within this category the major contribution came from games, toys and hobbies, particularly computer games.
As for tradables, clothing and footwear and furniture, household equipment and maintenance prices increased on the month (+0.5% and +1.2% respectively) more than last year, with sales pattern and pass-through from global commodity prices being mainly responsible for the increase in the annual growth rate (3.1% and 2.4%, respectively). the two components contributed 0.10pp to the change in the headline CPI inflation. At the non-core level, food and non-alcoholic beverages also supported headline. Meanwhile, the largest downward effect was concentrated in transport prices, specifically motor fuels and transport services, particularly air and sea fares, which subtracted 0.26pp from the monthly change in the inflation rate.
At the core level, non-energy industrial goods prices’ upward momentum continues. it is expected to stay put, albeit at possibly slower pace, in the coming months, supported mainly by recent renewed currency weakness. Past currency depreciation in fact seems to have passed through already. Meanwhile, underlying services inflation remains largely supported by domestic demand related components such as recreational & personal services, although it is unclear for how long that will be the case as recent developments suggest it may be due to volatile price movements for games. Elsewhere, support from volatile transport services prices is likely to correct, while housing prices continue to bottom.
RPI data stood above-consensus forecast at 271.7, 3.7% (y⁄y) in May’17, 0.4% (m⁄m). The y⁄y RPI data for May’17 was 3.66% to 2dp and Apr was 3.52%, a 0.1pp rise in the y⁄y RPI rate. The ONS house price index continued to exhibit erratic behaviour, rising to 5.6% (y⁄y) in Apr’17, up from an upward revised 4.5% (y⁄y) in Mar’17. This has an effect on RPI via the housing depreciation component that measures UK house prices. However, as this component is exponentially smoothed, this mitigates some of the month to month volatility in house prices.
The headline⁄core CPI inflation are expected to average at 2.6%⁄2.4% in 2017, respectively, while in 2018 rate is expected at 2.1%⁄2.1% from 2.7%⁄2.4% and 2.0%⁄2.0% in the previous forecast profile. The headline CPI inflation is expected to remain supported by volatile and core components in the coming months. In particular, both non-energy industrial goods (NEIG) and services prices are expected to remain on a modest improving trend. However, the recovery pace is likely to slow. As for tradables, past currency depreciation seems to have passed through already hence any upcoming support to the NEIG component will go hand in hand with currency moves which seem to point to further weakening ahead, at least until political uncertainty post elections continue to prevails. Meanwhile, services inflation seems unlikely to accelerate from current levels as the wage outlook remains uninspiring.
The RPI is expected to stand at 3.4% (0.1pp lower than previous forecast) and 2018 RPI to stand at 3.0% (up 0.1pp). Near term, the surprise strength in the ONS house price index poses some upside risks to RPI profile via housing depreciation. However, the latest data is not too much weighted as there is every chance it could be very weak next month given the volatility within the series.
Other News
AHDB Brexit Analysis for UK Grains: The report does not hold back from the potential realities that businesses need to factor into their thinking for post-Brexit agriculture and it underlines the significance of trade discussions with the EU.
A link to an online copy is here: http://www.ahdb.org.uk/documents/Horizon_Brexit_Analysis_june2017.PDF
‘Milk, Butter and Cheese’: Plant based foods cannot be sold in the EU using terms such as milk, butter and cheese according to a ruling by the European Court of Justice. There are some exemptions, for example-coconut milk, peanut butter almond milk and ice cream are allowed.
Groceries Code Adjudicator(GCA): Registration is now open for the Groceries Code Adjudicator (GCA) Conference on 26 June 2017, to be held at Church House Conference Centre, Dean’s Yard in Westminster SW1P 3NZ. The Adjudicator will present her Annual Report and release the GCA annual survey findings, with opportunities to ask questions. There will also be a workshop for direct suppliers on current Code-related issues. Register for your free place here.
Campden BRI Day: Took place on the 7thn June where a very well received Campden Day Lecture was given by Heather Hancock FSA Chair. Heather covered a breadth of issues from how she sees the FSA operating in the future (less of a parent-child relationship, and no more campaigning mode) to the challenges of Brexit and early thoughts on their key programme – Regulating Our Future. Listen to FSA’s Heather Hancock at Campden BRI https://www.campdenbri.co.uk/podcasts/39th-annual-campden-lecture.php?dm_i=2I5E,131X3,734T9N,39MMD,1