Voices in the Wilderness
19 / Oct / 2008
In many ways last weeks’ figures were in line with analysts predictions but the rate of change will certainly be of concern to the Bank of England. The big debate centred on to what extent would declining global demand bring down commodity and fuel prices. Mondays PPI numbers reflected the 10% decline in oil prices last month. Input prices fell by 1.2% in the September bringing the annual rate down to only +24.5%. Meanwhile output prices waned by a meagre 0.3% in September bringing the 12-month rate to +8.5%. Previous commodity and food price hikes were responsible for forcing consumer price inflation to a series high of 5.2% (a monthly gain of 0.5%). The old target measure of RPI-X advanced similarly, up 0.6% and 5.5%. However, there is exceptionally good news on the horizon (unless you’re long in miners and oils); the global downturn coupled with a warm start to autumn and a slight increase in refining capacity has brought crude oil prices crashing below $70.00p.b. OPEC is already talking about reducing supply but non-OPEC production is increasing and it is unlikely that the cartel will act with sufficient alacrity to stem the sell-off. With the US and Europe entering recession we are not buying “made in China” (or anywhere else for that matter) and since the Chinese economy domestically is unable to take up the slack further commodity price declines are inevitable. The only question remains “where is the true equilibrium price?” especially since those who forced the price up may soon be shorting oil on the way down.
The Bank would have been cheered greatly by Wednesday’s average earnings numbers; the quarterly rate advanced by a modest 3.4% (headline by 3.6%). However the reason behind the subdued numbers will be of little cheer to anyone – rising unemployment. The broad ILO measure posted a quarter to August rise of 164,000 bringing the total to 1.79 million or 5.7% of the workforce. The more suspect claimant count number advanced by 31,800 to 939,900. Remember David Blanchflower’s dire prediction of 2,000,000 by Christmas – we also remember his call for rate cuts – a true prophet?