Trucked Off
22 / Jun / 2006
May’s CPI figure showed inflation for the 12 month period advancing to 3.3% (analysts had been expecting 3.1%). In his letter Merv detailed the extent to which fuel and food prices have pushed up consumer prices, he also stated that CPI could well reach 4.00% by this December. However, in the absence of any further unexpected increases in oil and commodity prices inflation should fall back towards the 2.00% target. More importantly “ I expect, therefore, that this will be the first of a sequence of open letters over the next year or so”; basically monetary policy will not target increases in raw material prices so Base Rate should stay at around 5.00% ish. Furthermore on page 3, paragraph 4, Merv explains that earnings increases in real terms are moderate and that economic growth will slow down. The true implication though is in what is not actually said. If earnings and wages are not moderate then we will experience not cost increases but real live inflation and the Bank must, and will, react to this. Do fuel truckers deserve 14%? Possibly, we don’t know, but if other groups see this as a precedent then at the very least we will see a return to 1970’s employment relations, at the worst, a 1980’s recession.
Market rates advanced further on Thursday with the shock announcement that retail sales volumes rocketed in May by a mighty 3.5% bring the 12-month rate to 8.1%. Apparently we all bought more food and clothes, look around you this morning and spot the culprits with new suits with tight waistlines! However, there is a real sense of unreality at these numbers – there is a real deviation from both anecdotal and survey evidence. The High Street is quiet and even the mighty Tesco thinks we are in for a tough time so who is right, the department of guesswork or consumers?