- UK consumer prices fall with CPI coming in at 10.5% but services inflation rose
- Wages growth, sticky food prices and elevated energy costs still set to mean further rate rises on the cards
- Japanese stocks roar ahead after stimulus programme left unchanged.
- Burberry update indicates positive trends continue for the luxury brand
- Paperchase puts up the For Sale signs as stationer struggles amid weak demand
UK Inflation Climbs Down
As energy prices retreat, inflation is finally climbing down from its dizzying heights but it’s far from a vertiginous descent. The CPI snapshot came in a little lower than expected, at 10.5% and it’s a welcome sign for companies and consumers. Core prices, stripping out volatile energy and food costs also dropped back to 6.3% from 6.6%.
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But with the headline rate of inflation still firmly in double digits there is still a long way to go before the price spiral is under control, particularly given that services inflation heated up again, rising from 6.3% in November to 6.8% in December.
Food prices have continued their upwards march with higher prices in supermarkets, restaurants and hotels keeping the headline rate elevated. There have been warnings from industry bosses that prices will take considerable time to come down.
Gas prices have fallen back to levels not seen since September 2021, amid expectations more LNG will be heading to Europe, pushing fears of an energy crisis further into the distance. Crude oil is back below the levels it was before Russia invaded Ukraine, but it’s creeping up, with Brent Crude rising above $86 a barrel amid hopes of recovery of demand in China.
The latest jobs snapshot shows that wage growth is particularly strong in the private sector, increasing by 7.2% in the three months to November compared to a year earlier. This could mean companies will pass on those higher wage costs through more price rises. If this happens, it could add to the inflationary spiral.
With the jobs market still tight, energy set to stay elevated and relentless food price rises continuing it will mean inflation stays stickier for longer. So there is still a long way to go, and it looks like investors should brace for further rate rises from the Bank of England, with a 0.5% increase still firmly on the cards next month.
Surge In Japanese Stocks
Japanese stocks have surged ahead in a roar of relief after interest rates were kept on hold, the bond-buying programme was kept intact, and the era of ultra-cheap money will keep on rolling.
There had been expectations of a change to monetary policy after a tweak in December when the yield of the 10-year bond was being allowed to move 0.5% away from its 0% target, instead of the previous 0.25% range limit set. This was taken as a sign the Bank of Japan was testing the water ahead of further tweaks.
But policymakers are not wading in, even though inflation is currently above target, given that they foresee a fall ahead and instead will stay super-flexible with bond buying. The yen has fallen back 2% against the dollar which will further increase the price of imports in the short-term but the bank is judging that with growth slowing down, the economy still needs to be stimulated.
Burberry's Sales Slowdown
Burberry Group plc (LON:BRBY)’s shares had been climbing back towards pre-pandemic highs buoyed by expectations of higher demand due to China’s re-opening but this isn’t yet showing up in the figures, with sales growth overall disappointingly slowing to 1%. The Chinese market continues to be sideswiped by the pandemic, with store sales down 23%.
Investors will need another big dose of patience before well-heeled Chinese shoppers snap back into boutiques and international stores. However, elsewhere festive sales surged particularly across Europe with double digit growth recorded.
In particular, the acceleration of sales of leather ranges are an encouraging sign. Efforts to elevate the brand have been paying off, given that a luxe image is rewarded by improved loyalty among its wealthy customers, who are far more insulated from inflationary pressures.
Paperchase has put up a For Sale board, as it struggles to offload its stationary wares with its new owners clearly finding it challenging to turn around the company’s fortunes. It’s another sign of the tough operating environment for retailers selling discretionary goods. It’s been a super-tough few years for the company, which owns 106 stores across the UK.
It fell into administration during the pandemic, before being bought and then sold again to the Quilam Capital consortium. The chain launched a January fire-sale to offload excess inventory and is being sold as a going concern, but consumers set to be super-cautious amid rising prices and higher interest rates, potential buyers may be hesitant to take on the risk.”
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
