- UK CPI falls to 8.7% but still remains more than quadruple the Bank of England’s target.
- Core inflation rises from 6.2% to 6.8%, showing the stickiness of prices.
- Gulf remains in US debt ceiling negotiations, shackling markets to uncertainty.
- Brent crude jumps up above $77 a barrel amid speculation that OPEC+ could opt for another production cut.
- Fast fashion giant Shein rumoured to be setting up a manufacturing base in Mexico to expand its global roll-out
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’Inflation has soared up like an eagle and taken a ferocious bite out of our standard of living, but it’s coming down at a snail’s pace and leaving a sticky trail of prices in its wake. Growing at 8.7% in the year to April the growth in headline consumer prices was higher than expected and more than quadruple the Bank of England’s target. More worryingly, core inflation, which strips out volatile food and energy prices crept back upwards to 6.8%. It shows that the price spiral is still proving to be a stubborn beast to conquer for the Bank of England.
Lower wholesale energy prices have finally started to feed through and should propel inflation lower in the second half of the year. But it’s still unclear just how far and how fast inflation will fall. Although the jobs market is loosening up a bit, with more of the inactive masses returning to work and vacancies falling, the numbers of long-term sick have risen again. It means the Bank of England’s worries about the fight for labour pushing up wages hasn’t eased off much. Private sector pay grew 7% in January to March, but wages are still playing catch up with inflation and further pressure for more generous salaries is set to be applied. Policymakers worry that fatter pay packets will be passed on by companies in the form of higher prices.
Another rate rise may have the effect of a herd of rhinos trampling over an economy, which is only just seeing some green shoots appearing as the forecast recession recedes. But policymakers don’t have many other strategies to deploy right now to herd inflation in the right direction.
On the wider markets, positive sentiment is being restrained by shackles of uncertainty as the US debt ceiling negotiations continue without agreement. President Joe Biden and House Republican Speaker Kevin McCarthy need to find compromise on taxes and spending but are conscious any deal needs also to garner the support of congressional colleagues to pass. A wait and see mood is also set to prevail before the minutes of the Federal Open Market Committee’s May meeting are published, with investors eager to assess the latest thinking of policymakers when it comes to interest rates, and whether a pause or another hike is more likely. While the door is clearly open to a pause, it’s by no means locked in and Tuesday’s PMI showing a more buoyant private sector than forecast, is raising some concerns that another hike could be in store in the months to come. There is also some anticipation of yet another twist to come in the US/China chip wars. Calls made by the Representative Mike Gallagher, the chair of the influential China committee in Congress has called for curbs to be put on Chinese memory chip manufacturer Changxin Memory Technologies, in response to the Chinese ban on the sale of Micron chips. While he’s a lone voice in Congress calling for retaliatory action, more tit-for-tat curbs can’t be ruled out.
Oil prices have jumped to levels not seen for three weeks as expectations of another OPEC+ production cut have shot up. Traders appear to be buying the rumour that this could be the course of action decided on at the cartel’s June 4th meeting, after Saudi Arabia’s Prince Abdulaziz bin Salman told speculators to ‘watch out’. While this is by no means guaranteed, other upwards pressures are in force including the International Energy Agency’s prediction of a supply crunch in second half of the year, with demand expected to exceed supply by almost 2 million barrels a day.
The Chinese-founded apparel retailer Shein is expanding its production bases around the globe and appears to have its sights set on Mexico for a new manufacturing hub. The fast fashion giant makes most of its super-cheap garments in China but, to cut delivery times and win more market share, it aims to move more production bases into markets it sees as having huge potential. The company has been accused of using forced labour in China and has been under pressure to disclose more details of its supply chain and worker conditions by US lawmakers, given rumours that it may opt to list in the United States. Shein has been giving the UK’s fast fashion rivals, ASOS and Boohoo a run for their money, with the London listed companies under more pressure to differentiate themselves from a formidable Chinese competitor. ASOS is shapeshifting, heading onto the rental runway for the first time, in association with Hirestreet, in a bid to style itself with a more sustainable image, but it’s going to take time before shoppers’ perceptions shift.’’
