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UK Inflation Hits 4.5%, April Prices Rise By Record; Surge Blamed On Easter; Coping Complicated As Alcohol Rises By Record

Tyler Durden's picture




 

Once again we get validation that the ever accelerating stagflationary episode in the UK is taking far more than 15 minutes to sort out. Today, as MNI reports, consumer prices rose at their fastest pace on record
in April as the timing of Easter saw airfares rise sharply, according to
figures released by National Statistics Tuesday. Naturally, there has to be some seasonal offset in there somewhere, just like there was in the month prior, and the month before. Oddly, the Royal wedding was not implicated. From the BBC: "The rise was due to a jump in transport costs, particularly Easter rises in air and sea fares, and alcohol and tobacco. However, the Retail Prices Index (RPI) measure of inflation - which includes mortgage interest payments - fell slightly to 5.2% from 5.3% in March. The rise in CPI was bigger than analysts had forecast and follows a surprise fall in the index last month. CPI is now at its highest level since October 2008. The Office for National Statistics (ONS) said "by far the largest upward effect" on prices came from air transport, where fares rose by 29% between March and April. Sea fares rose by 22.3%. It said the fact that Easter was in April this year but in March last year partly explained the jump in prices." As to how people are coping with the fact that they can buy increasingly less, Easter or no Easter, "Alcoholic drinks and tobacco rose by a record 5.3% in April."

Presenting this visually:

Naturally, this has implications for the GBP, now that central banks define monetary policy based on month to month swings in CPI readings:

The governor of the Bank of England Mervyn King was forced to write a letter to the Chancellor George Osborne explaining why the inflation rate was more than 1% above the Bank's target rate of 2%.

He reiterated his view that high inflation was due to the "increase in VAT to 20% in January, higher energy prices and increases in import prices".

April was the 17th month in a row that the inflation rate was at least one percentage point above target, and the governor has to write to the chancellor every three months while it remains so.
Higher fuel bills

In March, inflation had fallen to 4% from 4.4% in February.

The return of accelerating price rises after March's respite will put further pressure on the Bank of England to raise rates sooner rather than later.

"April's rise in CPI inflation confirms that March's drop was just a temporary reprieve - inflation will probably get to 5% or above over the coming months," said Vicky Redwood at Capital Economics.

Last week, the Bank of England said it expected inflation to hit 5% later this year, largely due to higher utility bills.

It still expects inflation to fall back towards the Bank's target rate of 2% towards the end of next year.

The increasing pressure to raise rates following the jump in inflation was reflected in the currency markets, where the pound rose by more than half a cent against the dollar to $1.6285, and by almost 0.4 cents against the euro, to 1.1460 euros.

However, some analysts argued that this month's figures meant little in the context of longer-term price rises.

"Almost all of the pick-up in CPI inflation was due to higher transport costs caused by the timing of Easter, and this is likely to unwind next month," said Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club.

"Abstract from this issue and the picture is little changed and there are few implications for policy."

He does not expect the Bank to raise rates before November at the earliest.

And Goldman's take:

UK CPI: Highest for 2½ years, but upside surprise almost entirely driven by 'Easter effect'

BOTTOM LINE: Following the downside surprise in March, inflation surprised on the upside in April (Chart 1). CPI inflation rose from +4.0%yoy to +4.5%yoy - it's highest rate since October 2008 and considerably higher than expectations (GS: +4.2%, Cons: +4.1%). However, according to the ONS, the timing of Easter accounted for almost all of the upside surprise: three measures of travel costs in the CPI index (which, due to the price collection methodology used by the ONS, are particularly sensitive to the timing of the Easter Holidays) together contributed 0.36%pts to the 0.5%pt increase in annual inflation between March and April. This upward effect should fall out of the comparison in May, although other effects are likely to contribute positively.

1. As the ONS highlighted, the timing of Easter in 2011 - and its impact on measured travel costs - was the most significant driver of the 0.5%pt increase in year-on-year inflation in April. Taken together, the prices of air transport, sea transport and international rail travel contributed 0.36%pts to the increase in annual CPI inflation between March and April. This is largely a statistical base effect rather than an indication of underlying cost pressure: while Easter Sunday in 2010 fell in the first week of April - and so missed the collection period for the April 2010 CPI entirely - Easter Sunday in 2011 fell on April 24 (within the price recording window). As a result, this year, the return legs of the representative trips used by the ONS to capture the prices of air, sea and rail travel in April fell within 'peak' school holiday periods, thus causing elevated rates of year-on-year inflation to be registered in the travel cost components of the CPI and RPI indices.

2. Against the upward effect on inflation from the timing of Easter, petrol and diesel prices exerted downward pressure on headline inflation. Fuel prices rose by less in April 2011 than in April 2010, partly due to the recent decrease in excise duty compared with the increase this time last year.

3. One measure of 'core' inflation calculated by the ONS hit a record high in April. CPI inflation excluding energy, food, alcohol and tobacco rose from +3.2% to +3.7%yoy - the highest rate recorded since the series began in 1997.

4. With the upside surprise in April CPI inflation stemming from an idiosyncratic statistical effect, our view of the medium-term path for inflation is unchanged (we will send out an updated monthly path in due course). In last week's Inflation Report, the MPC revised up both its inflation forecast for the coming year as well as its projections for 2012 (and, to a lesser extent, 2013). In our view, January's VAT hike will continue to have an upward effect on inflation through the duration of the year and, combined with a rising contribution from commodity and food prices, we expect CPI inflation to remain above 3½% through most of 2011. In the medium-term, however, as these same factors begin to drop out of the 12-month comparison through the turn of the year, we expect the decline in annual CPI inflation in early 2012 to be sharp. That said, in light of this morning's surprise, the MPC's warning of a "significant risk that inflation would exceed 5%" in the coming months remains pertinent.

It is sad that central banks have completely lost control on what was once the reason for their existence, namely "price stability" - judging by the surging amplitudes in inflation and other indicators, it is obvious that stability is the last thing that modern economies have.

 

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Tue, 05/17/2011 - 07:26 | 1282285 swissaustrian
swissaustrian's picture

Surge Blamed On "______________" (insert random event)

Tue, 05/17/2011 - 07:31 | 1282293 I am a Man I am...
I am a Man I am Forty's picture

with the exception of loose monetary policy of course

Tue, 05/17/2011 - 08:07 | 1282363 Anonymouse
Anonymouse's picture

I am absolutely freaking out.  Summer is coming!

You know what that means, warm weather, hot weather, rain, drought!

That can only lead to inflation and revenue / earnings misses!

And if that weren't bad enough, after all that, it's going to get cold again.  There are even rumors of snow coming in 8 or 9 months.

Followed by another Easter!

How can an economy cope with this crazy volatility?!?!?!?!??!?!

Tue, 05/17/2011 - 08:41 | 1282415 Sam Clemons
Sam Clemons's picture

Except that Easter is not random.  I'm amazed that it has taken us 2000+ Easters to finally connect the dots between inflation and it.  How foolish.

Tue, 05/17/2011 - 09:00 | 1282473 RowdyRoddyPiper
RowdyRoddyPiper's picture

Those silly statisticians...always putting all their eggs in one basket.

Tue, 05/17/2011 - 09:12 | 1282533 Overflow-admin
Overflow-admin's picture

Surge Blamed On "__________" (insert random central bank name)

Tue, 05/17/2011 - 09:13 | 1282542 Overflow-admin
Overflow-admin's picture

Surge Blamed On "__________" (insert random central bank name)

Tue, 05/17/2011 - 07:28 | 1282288 AUD
AUD's picture

What's a pint of Speckled Hen cost these days?

Tue, 05/17/2011 - 07:52 | 1282318 mayhem_korner
mayhem_korner's picture

1.63 Sea Dogs.

Tue, 05/17/2011 - 07:29 | 1282290 ivana
ivana's picture

While USD still exists thanks to .... believe that in real world GBP does not exist anymore.

Who's holding that crap...

Tue, 05/17/2011 - 07:35 | 1282299 Oh regional Indian
Oh regional Indian's picture

Well ivana, true. But, enigmatically, the one square mile city of L holds more money power than the rest of the world combined. So, the GBP matters only by association.

Feel terrible for the middle-class brit. 24 hour pubs. Sure, that was a great idea.

Governments are so sick, it's beyond staggering.

ORI

http://aadivaahan.wordpress.com/2010/11/18/enchanted-mesmerized-en-chained/

Tue, 05/17/2011 - 07:51 | 1282317 ivana
ivana's picture

"money power"?

let them show it ... hahahaha

Now they can only show "power" with MAD - so let's start... we are waiting!

Tue, 05/17/2011 - 08:26 | 1282384 falak pema
falak pema's picture

what's your price Ivana?

Tue, 05/17/2011 - 08:36 | 1282406 ivana
ivana's picture

My price?

Free to those that can afford it, very expensive to those that can't!

:-)

(in fiat terms, not very expensive ... while I still have some spare time)

Tue, 05/17/2011 - 08:55 | 1282455 falak pema
falak pema's picture

I'm sure you're priceless...so I'll won't make an offer that you could...accept, out of kindness of free heart. But if paid in rich man's gold I'm sure that you would spare the time to fight inflation like the rest of us! Then I'd ask for second helpings ...like a true plutocrat brat!

Tue, 05/17/2011 - 08:02 | 1282338 writingsonthewall
writingsonthewall's picture

Expensive Alcohol + recession + high unemployment = revolution.

 

There is nothing more revolutionary than angry, poor and sober citizens with a lot of time on their hands these days...

Tue, 05/17/2011 - 07:35 | 1282297 Josephine29
Josephine29's picture

I had already spotted this and taken a look at some analysis. The Notayesmanseconomics blog points out that this was by no means a surprise.

If you think about it the fact that Easter was on April 4th last year means that higher prices then due to the effect stated above contributed to last months recorded decline in the annual rate of inflation. So all things being equal April should see a bounce back in the consumer and retail price indices.

 

And he also does not think much of Mervyn Kings explanation.

When inflation is 1% higher than its official target the Governor has to write to the Chancellor to explain why. Today’s letter contains something of a gem.

 

"Although the impact on inflation of these factors is difficult to quantify with precision, it is likely that had they not occurred, inflation would have been substantially lower and probably below the target."

 

Yes you have it, if prices had not risen inflation would be below target! Thanks for that insight Mervyn.

 

http://www.mindfulmoney.co.uk/wp/author/shaun-richards/

Tue, 05/17/2011 - 07:38 | 1282298 Franken_Stein
Franken_Stein's picture

 

What can you expect from a country under fucking Rothschild occupation.

 

These assfuckers know very well what they're doing.

They are unleashing an economic Holocaust.

The lot is no different than Hitler, Himmler or Eichmann.

 

And these clowns call themselves Ashkenazi Jews.

Didn't they read in the Torah, which is the Old Testament of the Bible, that

 

You shall not steal ?

 

They are as Jewish as my dog can fly.

 

Tue, 05/17/2011 - 07:47 | 1282315 sabra1
sabra1's picture

they all belong to satanic cult where God does not exist! hence, hell is where they hope to go!

Tue, 05/17/2011 - 08:27 | 1282395 falak pema
falak pema's picture

well the Rothys helped the British get empire since Waterloo, i.e. : since the beginning.

So don't knock the Rothys in UK. The are like the Windsors. So you better just eat your scones, stay shut up with mouth full. Like your dog. That's the City of London rule!

Tue, 05/17/2011 - 08:41 | 1282412 Franken_Stein
Franken_Stein's picture

 

The British Empire doesn't exist any more in case you haven't noticed.

So there's no need to protect the Rothschilds anymore.

 

I say, arrrest them and charge them with:

 

1. Crimes against humanity

2. High treason against the United States of America and Great Britain

3. Grand Theft in the trillions of dollars

 

Strip them of all their assets, sell them and give the money back to the people of both countries.

Problem solved.

 

Hey, in Germany they got rid of those bankers, too, back in the day.

But it looks like British and Americans are weak sauce.

They don't have the guts to do it.

 

They deem themselves so courageous and valorous when killing hundreds of thousands of people in foreign countries by dropping bombs from 10 km above, but are afraid of the enemy from within.

 

Who is commanding the army ? The president or the bankers ?

Who is commanding police ? The President or the bankers ?

Make it an executive order.

 

Tue, 05/17/2011 - 08:58 | 1282464 falak pema
falak pema's picture

but, but, but...there are the Olympics games in 2012, for which they need the Rothys...and for strawberries and ice cream and Wimbledon!

Tue, 05/17/2011 - 09:57 | 1282682 zeek
zeek's picture

Just 'make it an executive order' right...?!

Be careful what you're asking for... you're advocating something that we won't stand for... a dictatorship.

 

Tue, 05/17/2011 - 07:41 | 1282300 Al89
Al89's picture

£3.80+ for pints.

£4.00 for 10 packs of cigarettes .

 

Tue, 05/17/2011 - 12:35 | 1283414 Hexus
Hexus's picture

Get yourself up north, it's £3.30 a pint up here, what a bargain! Also, smoke roll ups. Oh and get a flat cap, whippet and asbo.

Tue, 05/17/2011 - 07:40 | 1282302 FoieGras
FoieGras's picture

5% inflation in UK means nominal GDP is growing 6-7%. That's good news for the UK, within 10 years their total debt to GDP will be cut in half.

Tue, 05/17/2011 - 07:40 | 1282309 Franken_Stein
Franken_Stein's picture

 

But it's stagflation, not inflation.

GDP isn't growing.

 

Tue, 05/17/2011 - 08:34 | 1282407 falak pema
falak pema's picture

Currently the UK economy has ONE NUT, the City. If it deflates, all hell breaks loose in UK. As : the housing crisis worsens as this is debt, therefore interest rate, dependent. As are pensions. All private and public pensions are risk asset based; thus prone to unwind if interest rates rise as a result of inflation hike!! Yikes!! This economy is tooooooo financialized. Will the Oligarchs, (russian and ME types), want to stay in London if the civil unrest makes it look like Greece every day of the week in one-two years?...I wonder!

Tue, 05/17/2011 - 08:51 | 1282451 Clowns on Acid
Clowns on Acid's picture

Where will the oligarchs go? back to russia? Back to middle east? China? London is their perfect nest.

A sound banking system, the rule of law, and London is a great place to shop and party. But to quote the BOE Gov. "This is temporary". 

Tue, 05/17/2011 - 09:02 | 1282481 falak pema
falak pema's picture

I get it! London stays as London ...for every body except the Brits! Ok for the Windsors, the Rothys with their bowlers and brollies, the Oligarchs with their Rusky wives and the ME sheikhs and their harems. The new Constantinople of our times...I have a bad omen...Remember Constantinople became...Istanbul!

Tue, 05/17/2011 - 10:16 | 1282764 Oh regional Indian
Oh regional Indian's picture

Well Falak, nothing remains Constant, not even Constant-inople. So, what will the City of London become, tale teller?

Wastelandistaan?

;-)

ORI

 

Tue, 05/17/2011 - 07:41 | 1282310 Cassandra Syndrome
Cassandra Syndrome's picture

Wrong. Their GDP deflator is only between 1 and 2%. In real terms their economy is still shrinking.

Tue, 05/17/2011 - 07:43 | 1282308 Cassandra Syndrome
Cassandra Syndrome's picture

Facking booze and tabs up 5.3%? Ah leave it out you Bernank cant.....

Tue, 05/17/2011 - 09:45 | 1282631 Herman Strandsc...
Herman Strandschnecke's picture

'Facking booze and tabs up 5.3%? Ah leave it out you Bernank cant.....'

No.No.No, please allow me to translate:

Feckin booze and fags up over five percent? Yor avin a larf you feckin Bernank cant....gertcha

P.S: Fags are upwards of £7 quid a packitt and you wont git much chjange of a fiver fora pint

Tue, 05/17/2011 - 07:45 | 1282314 johny2
johny2's picture

It is much more keeping with tradition to default by stealth ( currency devaluation ), than to do it openly.

Tue, 05/17/2011 - 07:59 | 1282328 reload
reload's picture

Small business owners in the UK (like me) hardly needed these figures to understand that our margin destruction continues apace. Thanks Mervin, but your assurances that its only temporary wore thin last summer.

Policy in the UK is made with only the Banks in mind, the rest of us serfs will just have to cope.

 

Equity investments in SME are now virtually impossible to find, for that we would need some efficient price discovery mechanisms - and thats all a bit last centuary.

 

A hike in rates would no doubt send the housing market down in flames, and it remains the elephant in the room.

 

Who on earth would be long UK Gilts? - or any government IOU for that matter.

Tue, 05/17/2011 - 08:07 | 1282355 ivana
ivana's picture

Friendly buddies CB's. For just few weeks more IMHO

Tue, 05/17/2011 - 08:08 | 1282356 AUD
AUD's picture

Who on earth would be long UK Gilts? - or any government IOU for that matter.

Bond speculators. They make their 'money' by speculating with your money, since they get a government guarantee, while you work so you can loan your money to them.

 

Tue, 05/17/2011 - 09:11 | 1282529 topcallingtroll
topcallingtroll's picture

We usually think flexible labor markets will save the usa. This is probably a dead thread, but cant you guys also fire people without cause? We arent required to have a reason to fire people since employment is at will in the usa.

Tue, 05/17/2011 - 08:21 | 1282377 YHC-FTSE
YHC-FTSE's picture

Experts on BBC news this morning (When they were plugging the government NS&I accounts that were paying "ahead" of inflation) said it was more like 8.9%-18.9% for essentials - food, petrol, utilities. Petrol alone has risen over 46.1% in the last 5yrs, so a figure of 4-5% yoy is fucking stupid.

 

For example, a gallon of petrol in the UK at the pump costs US$9.61 (£5.91) right now and set to rise. All commodities are priced in USD, and QE3 expectation of another printing spree by Bernanke is high. So unless the GBPUSD hits a number that is consonant to the rate of devaluation of the dollar (5?), every time Britain or any other oil importing country buys anything in USD, we lose out. So, the expectation that inflation will magically dwindle to 2% by the end of next year is a bit farcical.

 

Price commodities in other commodities/backed currencies, and the world might survive the fallout. I can no longer afford to keep the American hegemony going, and I refuse to subsidise these clueless fuckers to enjoy their lifestyle of killing and consuming. 

Tue, 05/17/2011 - 09:11 | 1282518 topcallingtroll
topcallingtroll's picture

Good luck opting out.

Tue, 05/17/2011 - 10:09 | 1282730 zeek
zeek's picture

HKMEX is way ahead of you...

http://www.commodityonline.com/news/HKMEx-to-launch-Yuan-denominated-gold-Futures-38977-3-1.html

I am not informed enough to make some predictions about what impact this will have in international trade once this occurs in multiple currencies, with multiple commodities.

It might turn out well, but I'm leary...

Tue, 05/17/2011 - 10:47 | 1282948 YHC-FTSE
YHC-FTSE's picture

Thanks for the link mate. Oddly enough this ties in nicely with something else I've been trying to do - a certificated account on the HK exchange.

Tue, 05/17/2011 - 08:32 | 1282397 wandstrasse
wandstrasse's picture

Why don't they cut Easter? They also successfully did cut snow (so far).

Tue, 05/17/2011 - 09:50 | 1282665 Herman Strandsc...
Herman Strandschnecke's picture

Won't cut Easter my friend. It's the only time of year the girls can pig out on chocolate without being accused of being a lardy arse.

Tue, 05/17/2011 - 09:45 | 1282654 slewie the pi-rat
slewie the pi-rat's picture

at least it didn't snow on easter

Tue, 05/17/2011 - 09:59 | 1282690 cabernet
cabernet's picture

The folks in the UK need to go back to their roots, the "real" Pound Sterling. They should convert their currency to silver for inflation protection and give up the worry on rising prices relative to their fiat currency. Easy money is here to stay as global QE will continue so long as the western economies remain weak.

http://www.TheAngryGrapes.Com

Tue, 05/17/2011 - 10:23 | 1282812 HedgeFundLIVE
HedgeFundLIVE's picture

EURUSD has further to fall, already having broken support zones multiple times: http://www.hedgefundlive.com/blog/forex-eurusd-respecting-long-term-fib-levels

Do NOT follow this link or you will be banned from the site!