The Office for National Statistics has published this news on inflation in November this morning:
- The Consumer Prices Index (CPI) rose by 2.6% in the 12 months to November 2024, up from 2.3% in the 12 months to October.
- On a monthly basis, CPI rose by 0.1% in November 2024, compared with a fall of 0.2% in November 2023.
- The largest upward contribution to the monthly change in CPI annual rates came from transport.
- Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.5% in the 12 months to November 2024, up from 3.3% in October; the CPI goods annual rate rose from negative 0.3% to positive 0.4%, while the CPI services annual rate was unchanged at 5.0%.
I am tempted to ask, who gives a damn?
The change is one of those inevitable movements in an index that maths will generate as a consequence of how these things are constructed and how events fall out.
Is there anything in here to panic about, most especially when it comes to interest rates, which the Bank of England still have at 4.75%, which rate is up for review again this week? The answer is yes, but that is only because what this makes very clear is that rates are too high. They need to fall so that we have zero real rates - suggesting a two per cent cut is required.
And there is another good reason for saying this, which is that this was all forecast: it was known that this would happen months ago, and so to make a fuss about this is absurd.
Let's get in with reality, I suggest. These statistics are abstracts from that.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
CPI rose by 0.4% in December 2023, so if the statistical analysis gives an estimate of 0.1% again for December 2024 the next announcement will be a drop of 0.3% again back to 2.3% and the BoE will claim their unpalatable medicine is still needed and working again (in a way it is needed but not working this month).
People will throw up their hands in February 2025 when we replace the 0.6% drop in January 2024 with whatever happens in January 2025, and then things might look better compared to the monthly 0.6% rises in February and March 2024. And then the monthly changes for the rest of 2024 were more or less bumping along.
This breathless focus on monthly statistical noise in measurements of GDP and inflation and other indices is just stupid.
Entirely agreed
Yes, the year-on-year data can be misleading as it depends on what happened in a particular month a year ago as much as it does on the latest month’s price changes. However, one needs to take a little care about extrapolating the 0.1% in November forward into December. Christmas means that prices do tend to be higher in December than November… and then drop back in January.
So, Y-o-Y data does eliminate seasonality but is far too backward looking. What we really need is “seasonally adjusted, month-on-month, annualised” data.
See my second post…..
Quick flick through the Guardian and for a leader of the country who took £100,000 worth of freebies for clothes, event tickets and spectacles the following reveals the lack of morality is still going strong:-
https://www.theguardian.com/money/2024/dec/17/uk-pay-growth-interest-rate-cut-manufacturing-sector
https://www.theguardian.com/society/2024/dec/10/union-anger-over-labour-governments-insulting-28-public-sector-pay-plan
Of course Starmer can rely on his cheer leaders in the press to deny there is no lack of morality and it will all turn out good in the end:-
https://www.theguardian.com/commentisfree/2024/dec/17/labour-keir-starmer-low-carbon-energy-prison-reforms-housebuilding
Rates drive inflation.
Eg. Lets say I am investor, and want to sell 1 year gold futures at todays price. Doesn’t have to be gold, but can be any commodity. For a 100% safe, fully covered trade I would have to:
1. Borrow money to buy gold at todays price.
2. Store it for a year.
3. Release the gold, when the future matures in a years time.
So whats the price of the future? Well, its obvious. For me to break even, I would have to sell the future for the price of gold price today + interest payable in that year I store it.
But, look at what this market single says: A quantity of gold today, valued at X today, will be worth X+Interest in 1 years time. This is what inflation is. Its the rise of prices over time.
Hence, interest rates are driving inflation. Not throttling it, as we are told.
Rates DO drive inflation to a certain degree but not quite for the reasons you suggest.
Interest is an input cost just as surely as raw materials and labour so if you pay more interest then prices must rise.
However, your example does not explain it. You are correct that forward prices (for non-income generating assets) is higher than spot – this is just simple “no arbitrage pricing” – but the forward price is not a good predictor of spot prices in the future (all empirical research confirms this) so would not bias inflation data.
Of course, jewellers might buy gold futures to hedge (paying a higher rate than spot) but that is really just “interest rates are an input cost for a business”.
Not just jewelers, my having has an ‘interesting’ conversation with my dentist about a gold crown (damn all those sweets scoffed in the 60s and 70s, proffered by well-meaning grandparents who grew up with confectionary rationing!) last week!
I suffered that way too!
Inflation is the reduction in the value of the money that is in my pocket. The more coins that is in everybody’s pocket then, the less value are the coins in mine. However, people don’t keep money in their pocket anymore and people don’t spend coins. People don’t budget based on how much coins that they have. People are not paid wages with coins. Government don’t collect coins when they tax. Government’s do not spend coins when they spend. The central bank can put whatever interest rate it wants on coins or the borrowing of coins or whatever it is that they define as “coins” in today’s economy, but I find it hard to see the exact relationship between prices and interest rates. Whatever is the relation can only be found out afterwards, or extrapolated if we can be 100% certain of future events.
You’re right Richard, the Bank of England will use this statistic to claim the dragon hasn’t been slain yet, and keep the base rate at its present level. I’m assuming they won’t be so stupid as to raise it again, but perhaps I’m being generous there…
I don’t see an increase, yet
But they will grumble about wages,of course