UK inflation rises to 0.7% in January; US retail sales jump – as it happened

Graeme Wearden

from Economics | The Guardian on 2021-02-17 15:44 (#5E97Z)

Rolling coverage of the latest economic and financial news

3.43pm GMT

Time for a recap

Inflation in the UK has risen to its highest level in three months, and is probably heading higher.

3.14pm GMT

Orders for almost 100,000 trees have been cancelled by Northern Ireland buyers because of a post-Brexit ban on the plants being moved from Britain, the Guardian can reveal.

Leaders in the business say it is a major setback for tree-planting programmes in Belfast and elsewhere in the region.

2.50pm GMT

Inflation jitters are pushing Wall Street down at the start of trading, away from its recent record highs.

Rising bond yields provide less reason to hold stocks and precious metals, with the US dollar gaining traction as a result.

Optimists will recognise that the Fed's recent average inflation targeting policy allows for significant overshoot on the inflation-front, yet we are yet to see other banks follow suit thus far.

2.43pm GMT

As well as hitting oil production, the winter storms ravaging Texas is also disrupting the semiconductor sector.

One of the area's largest semiconductor producers, Samsung Electronics, said it had halted operations at its multibillion-dollar fabrication plant in Austin on Tuesday, with no clear timeline for resuming production. Austin's local energy provider has asked all large-scale manufacturers to reduce or shutter operations during the storm.

The area is home to several tech manufacturing facilities owned by suppliers including Flex, NXP, Applied Materials and Infineon.

Texas winter storm blackouts hit chip production https://t.co/bvWx91sokJ

2.31pm GMT

In another beat - US industrial output jumped by 0.9% in January, ahead of forecasts of 0.5% rise.

Industrial Production Rises More Than Expected In January, Still Down Year-Over-Year https://t.co/M0fLpUfJS5 pic.twitter.com/1lpLjuxRLf

2.30pm GMT

Neil Birrell, chief investment officer at Premier Miton, reckons the surge in US retail spending will make it harder for Joe Biden to persuade Congress to back another large stimulus package:

Recent retail sales and jobs data has been uninspiring with consumer sentiment under pressure but today's retail sales number, which is a key data point this week, was way, way ahead of expectations. It will add fuel to the reflation trade.

It is also bad news for Biden, it is likely to make it more difficult for him to get his support package through."

2.23pm GMT

Inflation is also rising in Canada, faster than in the UK.

Canada's annual inflation rate accelerated to 1.0% in January, up from 0.7% in December, led by higher prices for durable goods and gasoline.

Canada's annual inflation rate rose at a faster pace in January (+1.0%) than in December (+0.7%). The acceleration in consumer prices was largely due to higher prices for durable goods (+1.7%) and rising gasoline prices (+6.1%) compared with December, 2020 https://t.co/xy8Ycs9r37

The annual inflation rate in Canada rose to 1% in January of 2021 from 0.7% in the previous month and above market expectations of 0.9%. pic.twitter.com/2ciK5yWGy2

2.22pm GMT

The bar biz needs help! Man, look at these wild swings in Jan. Retail Sales (year-over-year)
Up big:
Online sales up 28.7%
Building materials up 19.0%
Food/beverage up 11.8%
Furniture up 11.7%

Down big
Restaurant/bars down 16.6%
Clothing down 11.1%
Gas stations down 7.8%@CNBC

1.59pm GMT

The US retail sales report also highlights that online shopping, and spending on hobbies, has surged over the last year.

Spending at nonstore retailers in January 2021 was 28.7% higher than a year ago, while sporting goods, hobby, musical instrument, and book stores were up 22.5% year-on-year.

Nonstore retailers seasonally adjusted sales for January 2021 up 11.0% from December 2020, and up 28.7% from January 2020. #CensusEconData #RetailSales

After months of decline, it's encouraging to see an uptick in sales to kick off 2021. Heavy discounting and January promos have likely impacted sales, especially for savvy buyers looking to bag a bargain.

Online storefronts came out on top again this month as more consumers transition to online shopping due to convenience and safety during the ongoing pandemic. If the last 10 months have highlighted anything in the retail industry, it's the importance of offering an omnichannel experience. Gone are the days where retailers can rely solely on brick and mortar stores for revenue.

1.48pm GMT

The surge in US retail sales shows that stimulus checks do lead to higher spending.

Diane Swonk, chief economist at Grant Thornton, says those $600 payments from Congress had a clear impact:

Stimulus delivers to produce unseasonably strong rebound in retail sales in Jan. Remember, Jan is typically a light month for spending. Data for November and December were revised down, which underscores key role of checks - which signed into law Dec 27 - in supporting gains.

US retail sales off to a very strong start in January. Total sales up 5.8% over last year. Core retail sales up by a stunning 10.7% over last year. Stimulus has helped to boost spending. #RetailSales

January retail sales: Wow. Nothing like pumping $920 billion into the economy to crush forecasts. Half was probably spent right way based on our numbers. And this in a month that dips from December due to seasonal factors.

1.38pm GMT

Just in: US retail spending jumped by over 5% last month, much stronger than expected.

Retail sales surged by 5.3% in January, compared to December, smashing forecast for a 1.1% rise.

US Retail Sales (Jan) comes in at 5.3%, exp: 1.1%, prev: -0.7%

BREAKING:

*U.S. CORE RETAIL SALES JUMP +5.9% IN JANUARY, EST. +1.0% pic.twitter.com/ldPiGQHn5g

NEW YORK (AP) - Armed with $600 stimulus checks, Americans spent more in January, sending retail sales soaring 5.3%.

Retail sales crush estimates, absolutely blow the doors off. December revised even lower, but more than made up for by the beat. Core Control up 6.0%!

Three factors at work:

1) virus surge/retreat
2) funky seasonality
3) CHECKS pic.twitter.com/16CPXAu8yZ

1.16pm GMT

While oil rallies, precious metals prices are dipping as the US dollar strengthens.

The rise in US government bond yields overnight, amid speculation about rising inflation, is giving the dollar a lift. It could lead to central banks dialling back their huge stimulus packages earlier than expected.

Regarding the bond market sell-off, things are finally starting to get serious as real yields are on the rise, driven by bets.. of central banks tightening sooner than previously expected.

Risk assets are now becoming vulnerable to a pull-back."

Energy update:
Oil - WTI (undated) 6100 +1.48%
Oil - Brent (undated) 6397 +1.57%
Natural Gas 3009 -0.36%
Heating Oil 18284 +1.24%
Gasoline 18739 +1.89%
London Gas Oil 525 +1.45%#Oil #Brent #WTI #OOTT

Precious Metals update:#Gold 1789 -0.3%#Silver 2716 -0.28%#Platinum 1240 -1.86%#XAUUSD #Commodities

Gold price slumps to 2.5-mo. low amid scant risk aversion https://t.co/GCU2VuILCC pic.twitter.com/LjGVIp6wll

12.53pm GMT

The jump in the oil price is being driven by major disruption caused by the winter storm in Southern US states such as Texas.

Some refineries and oil wells have been forced to temporarily shut down due to the snow and ice, which has killed at least 21 people and left millions of homes stranded without power.

12.36pm GMT

Here's a chart showing how inflation in the UK has hit a three-month high, but remains low in historic terms (but may rise in the coming months....)

12.34pm GMT

Oil has hit a new 13-month high, which could also push inflation up if it feeds through to fuel prices.

Brent crude is up 1.6% at $64.47 per barrel, the highest since January 2020. It's now rallied by more than 60% since the start of November (when it was trading below $40), as Covid-19 vaccines lifting hopes of a rebound in oil demand this year.

12.11pm GMT

Over in the US, the number of new house loan applications has fallen as mortgage rates rise - another sign of inflationary pressures.

Total new mortgage applications were down 5% last week, compared to the previous seven days, with rising rates deterring potential buyers.

Expectations of faster economic growth and inflation continue to push Treasury yields and mortgage rates higher.

Since hitting a survey low in December, the 30-year fixed rate has slowly risen, and last week climbed to its highest level since November 2020."

Total mortgage application volume in the United States fell 5.1% last week from the previous week, according to the Mortgage Bankers Association's seasonally adjusted index.https://t.co/q6pfG8n745

11.52am GMT

Over in Rome, Italy's new prime minister has been laying out his reform plans.

The government that I have the honour to lead, especially in a dramatic situation such as the one we are experiencing, is simply the government of the country. It does not need any further adjectives to define it."

Today we have, as did the governments of the immediate post-war period, the possibility, or rather the responsibility, to launch a new reconstruction. ... This is our mission as Italians: to hand over a better and fairer country to our children and grandchildren."

In the coming weeks we will strengthen the (Recovery Plan), in particular with regards to the objectives concerning the production of energy from renewable sources, air and water pollution, the high-speed railway network, energy distribution networks for electric vehicles, hydrogen production and distribution, digitalisation, broadband and 5G networks."

Supporting this government means sharing the irreversibility of the choice of the euro, it means sharing the prospect of an increasingly integrated European Union that will arrive at a common public budget capable of supporting countries in times of recession."

There is no Europe without Italy. But, outside Europe there is less Italy. There is no sovereignty in solitude."

.#Draghi mentions decade-long structural issues Italy has failed to address successfully and that will be top reform priorities: barriers to investment, competition, tax system, public administration and justice system. All to be included in the recovery and resilience plan. #RRF

#Draghi cites the Denmark precedent on tax reform: lower top rate, larger no tax area, reduction of overall taxation.

And a systematic approach to reform: "Non e una buona idea cambiare le tasse una alla volta"

Interesting#Italy

11.31am GMT

Having hit $50,000 for the first time yesterday, bitcoin is continuing to rally to new peaks.

It's now trading around $51,500, up another 6% today.

Gold and Bitcoin continue to head in the opposite direction. The cryptocurrency broke above the $50,000 hurdle for the first time ever on Tuesday and is continuing to push to new uncharted territories at the start of today's session, hitting a high so far of $51,500. In contrast, gold is now looking quite bleak after breaking the $1800 support as investors keep a close eye on government bonds after the 10-year US yield climbed above the March 2020 high the day before.

Bond prices have slumped in recent weeks with investors piling into the more risk-sensitive assets like stocks, Bitcoin, crude oil and copper amid speculation that the ongoing COVID vaccine rollout, slowing virus outbreaks and ongoing central bank and government stimulus will all help to stimulate a sharp global economic recovery. In other words, the reflation" trade has been kind to cryptos, but not much for safe-haven gold.

11.08am GMT

Ford Motor has announced ambitious plans to only sell electric cars in Europe by 2030, abandoning the internal combustion engine within a decade.

The investment in Cologne will see the company update an existing assembly plant, converting it into a facility focused on the production of electric vehicles.

Our announcement today to transform our Cologne facility, the home of our operations in Germany for 90 years, is one of the most significant Ford has made in over a generation," Stuart Rowley, Ford of Europe's president, said in a statement.

It underlines our commitment to Europe and a modern future with electric vehicles at the heart of our strategy for growth," Rowley added.

#Ford - the original mass-producer of internal combustion engines - is leading again. They will stop selling #cars in the #UK and #Europe with an internal combustion engine by 2030 - the most ambitious electrification target of any big #automobile manufacturer.#ElectricVehicles

10.53am GMT

In other news... budget airline Ryanair has failed to persuade a top European court that government help handed to French and Swedish airlines during the pandemic broke state aid rules.

That aid scheme is appropriate for making good the economic damage caused by the COVID-19 pandemic and does not constitute discrimination,"

Ryanair has today lost its fight against state aid granted to flag carriers including rivals Air France and SAS after a top European court said such schemes amid the Covid-19 pandemic were not discriminatory. https://t.co/2evIrhdVGt

10.36am GMT

The Bank of England is unlikely to be alarmed by the pick-up in inflation, our economics editor Larry Elliott explains:

It would come as no surprise to see inflation rise further over the summer. Many consumers are cash-rich after being deprived of spending opportunities, and a lot of businesses are clinging on by their fingertips. The combination of the two is likely to push up prices. Brexit will continue to have a temporary upward effect on inflation.

Rising prices would only prompt a marked change in policy from the Bank of England if there were signs that it was leading to a surge in wage inflation. That doesn't seem all that probable, given the sharp rise in unemployment over the past year. But the Bank will start to think about how and when to unwind some of the emergency stimulus it has been providing. Negative interest rates will be off the agenda.

10.18am GMT

Rising food prices drove up inflation in January during the toughest coronavirus lockdown measures since the first wave of the pandemic, my colleague Richard Partington reports.

The Office for National Statistics said the consumer prices index rose to 0.7% in January - from 0.6% a month earlier - as shops including food retailers and household goods stores pushed up their prices with less discounting this year on items such as beds and settees.

10.12am GMT

Here's our news story about Rio Tintos record dividend, after it benefited from demand for iron ore as China's economy bounced back from the coronavirus lockdown last year.

9.51am GMT

British house prices rose at the fastest rate in more than six years at the end of 2020, amid the scramble to take advantage of the stamp duty holiday.

The Office for National Statistics reports that house prices in December were 8.5% higher than a year earlier. That's up from a 7.1% rise in November, the biggest year-on-year rise since October 2014.

9.37am GMT

European stock markets are all down this morning, as the recent rally takes a breather.

The Europe-wide Stoxx 600 has dipped by 0.5%, after global stocks fell slightly yesterday - after an 11-day run of gains (the best in three years).

The FTSE 100 started Wednesday modestly on the back foot after UK inflation figures from which it was difficult to take anything tangible.

With consumption artificially depressed by lockdown there's not a lot for the data crunchers to work with, though there are some signs that the widely anticipated increase in prices is starting to come through.

9.33am GMT

In the City, the FTSE 100 index of blue-chip shares has dropped by 0.3% in early trading, with inflation on traders' minds.

Financial services firm Hargreaves Lansdown is the top faller, down 6.6%, after c0-founder Peter Hargreaves cashed in 300m of shares yesterday.

It has been an extraordinary year - our successful response to the COVID-19 pandemic and strong safety performance were overshadowed by the tragic events at the Juukan Gorge, which should never have happened.

9.08am GMT

UK manufacturers put their prices up last month, according to the ONS's latest survey of producer price inflation.

Factory gate prices rose by 0.4% in January, up from 0.2% in December 2020 -- but they were still 0.2% lower than a year ago.

8.39am GMT

Clothing and footwear prices fell by 4.8% last month, a steep decline, amid a flurry of discounting.

The ONS says there was a notable increase in the proportion of items marked as being discounted, particularly for men's clothing".

8.37am GMT

Here's ONS statistician Jonathan Athow on the inflation stats:

Commenting on today's figures, Deputy National Statistician for Economic Statistics @jathers_ONS said: (1/2) pic.twitter.com/jJc19GTjqB

.@jathers_ONS continued: (2/2) pic.twitter.com/szxMnN0FfQ

8.17am GMT

Jai Malhi, Global Market Strategist at J.P. Morgan Asset Management, also predicts inflation will continue to rise in 2021:

The base effects on energy and food prices will push inflation higher in the coming months and the vaccine rollout should eventually lead to a relaxation in restrictions at a time when the government's VAT cut for the hospitality sector should expire.

A mix of supply distortions from Brexit and Covid-19, alongside a strong demand recovery, could create a recipe for higher prices across both the goods and services sectors. Inflation is likely to start testing the Bank of England's 2% target later in the year when the UK consumer is able to unleash some of the 125bn of additional savings they've accumulated during lockdowns, particularly if they run into supply bottlenecks."

8.16am GMT

Paul Dales, chief UK Economist at Capital Economics, predicts that UK inflation could hit 2% by April (which is the Bank of England's target).

He also warns that Brexit, and the rise in global shipping costs amid the pandemic, will have an upward impact on prices this year:

The rise in January is a bit of a sideshow to the probable leap in inflation to around 2.0% in April due to last year's plunge in fuel prices dropping out of the annual comparison, the temporary hospitality VAT cut being reversed and the 9.2% rise in Ofgem's utility price cap. The unwinding of the downward effects of last August's EOHO restaurant scheme will push it higher still in August. By December, CPI inflation may be around 2.5%.

We still think that a fall back in oil prices, the effects of the stronger pound and the legacy of spare capacity will drag inflation back below 2% in 2022. But the risk is that the recent spike in global shipping costs, the effect of Brexit and a desire to recoup lost revenues once businesses reopen keep it above 2.0% for longer. Even in that case, over the next few years we suspect the Bank would still prioritise supporting growth over reducing inflation.

8.06am GMT

Suren Thiru, head of economics at the British Chambers of Commerce, predicts that inflation will continue to rise.

Post-Brexit border disruption", and rising demand as Covid-19 restrictions are eased, will both push up prices, he explains, along with a looming energy price hike in April.

@ONS data shows #UK CPI #inflation rate rose to 0.7% in January 2021 (from 0.6% in December 2020).

Rising prices for food and household goods help drive the increase in the 12-month rate in January.

UK CPI #inflation fell by 0.2% m/m, reflecting impact of January sales. pic.twitter.com/Uk5GMzFcvs

The expected rally in consumer demand as #coronavirus restrictions ease & post-Brexit border disruption are likely to push UK inflation markedly higher over the coming months, particularly as the increase in the @ofgem energy price cap enters the calculation in April.

But such drivers of inflation are typically transitory in nature & with high unemployment likely to limit the extent to which stronger price growth translates into stronger pay growth, @bankofengland should have sufficient scope to look through' any impending spike in inflation.

8.01am GMT

Meat prices also rose in January, partly driven by prepacked, sliced cooked ham and frozen imported lamb leg".

7.53am GMT

Food and non-alcoholic beverages rose by 0.6% in January, the ONS says, with vegetables and oils and fats pushed up inflation last month.

Overall prices for vegetables, in particular for premium potato crisps and cauliflowers (which were heavily discounted in December 2020), rose between December 2020 and January 2021, while they were unchanged between December 2019 and January 2020.

With oils and fats, prices overall fell by 8.9% between December 2019 and January 2020 but fell by only 0.2% between December 2020 and January 2021.

The largest price increases were for frozen fish fingers and prawns, and fresh salmon fillets.

7.39am GMT

A surge in demand for new furniture from locked-down families may have contributed to the rise in inflation.

The Office for National Statistics reports that there was reduced discounting to prices of leather settees and double beds" in January, adding:

There were smaller upward contributions across the household textiles; household appliances, fitting and repairs; and glassware, tableware and household utensils groups, with the only standout movements coming from fitted sheets and duvets.

7.32am GMT

This chart shows how prices changed in January -- with furniture, food and transport pushing the inflation rate up, while clothing and shoes were discounted in the sales:

7.19am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

We start with inflation, which has risen again in the UK.

Inflation - how quickly prices are rising - is sneaking up. Not that high right now, but one to watch this year.

Now at 0.7% (the @ons's CPI figure)

Furniture, household goods, food, transport costs pushing prices higher.

I've had a few messages about prices at the pumps...

The cost of goods in the shops -- those that are open, anyway -- rose 0.7% in January on the year before. @ONS says food prices went up and there was less discounting on items such as bedding and settees. But widespread January sales saw price cuts for clothing and footwear.

The rise in bond yields continues again today. The US 10-year Treasury yield is up 8 basis points to 1.29%. pic.twitter.com/EizUA7w1f1

U.S. 10-YEAR TREASURY YIELD RISES TO 1.3% FOR THE FIRST TIME IN NEARLY ONE YEAR pic.twitter.com/C3cqyq5Jwo

Combined with sharp rises in energy and commodity prices there is rising concern that higher prices will not only choke off any post pandemic recovery, due to higher borrowing costs, but they could also crimp future consumer spending due to higher living costs.

This caution appears to be manifesting itself into this morning's European open, which looks set to be a mixed one, with Asia markets also trading in a similar fashion.

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