Closing post
Time to wrap up.
Rain Newton-Smith told an audience in London that businesses “want stability so they can invest for the future”, not tax cuts driven by short-termism.
She insisted:
To fund our public services with an ageing population, we must keep large-scale tax cuts off the table.
Bank of England policymaker Catherine Mann has warned that inflation is “the most pernicious of taxes”, as she explained why she wanted to raise interest rates last week.
Mann warned of risks of “continued inflation momentum and embedded persistence”, adding that Red Sea disruption could also push up prices in the UK.
China has the opposite problem, though – deflation. Its consumer prices index fell at the fastest pace in 15 years in January, pulled down by cheaper food.
The outlook for the UK housing market has improved, surveyors say…..
…but more mortgage-holders have dropped into arrears in the last quarter.
Shares in UK chip designer Arm has soared after it reported seeing higher royalty and licensing revenue amid strong AI demand.
Here’s the rest of today’s news stories:
BoE's Mann: Inflation is the most pernicious of taxes
Bank of England policymaker Catherine Mann is explaining that she voted to raise UK interest rates last week because of the need to fight the “pernicious” tax of inflation.
In a speech to the Official Monetary and Financial Institutions Forum this afternoon, Mann warns that there are risks of “continued inflation momentum and embedded persistence”, due to sluggish supply growth and the risk of “upside shocks”.
Mann explains that the UK jobs market is “still relatively tight” and is loosening only slowly.
She also points out that financial conditions have eased substantially since September, as the markets have anticipated cuts to Bank Rate in the coming months.
Mann says:
Inflation is the most pernicious of taxes, affecting all households, and those at lower incomes most severely.
Considering both backward-looking outcomes and my forward-looking assessments and risks, I determined it was prudent to vote for another increase in Bank Rate. It was a finely balanced decision.
Mann was joined in her vote to raise interest rates to 5.5% by fellow policymaker Jonathan Haskel. Six of the nine committee members voted to hold rates, while one, Swati Dhingra, voted for a cut.
Mann warns today that there is evidence of “upward bias” by firms when they set their prices, which would add to inflationary pressures.
The Bank of England forecasts that inflation will fall to its 2% target this spring, down from 4% in December, before rising by the end of the year
She also fears that Middle East turmoil could quickly push up prices in the UK:
More immediately, upside risk to shipping and insurance costs associated with the Red Sea turmoil may affect near-term inflation outcomes and be magnified through firm-level price setting behaviors, which would augment persistence.
I worry that such an upward inflation shock coming on the heels of the recent high inflation environment will be more swiftly incorporated into firms’ costs and prices, exacerbating upside momentum, which is slow to dissipate when the inflation shock subsides.
Updated
Arm shares surge as AI demand boosts growth prospects
The value of UK chip designer ARM has surged by over a third at the start of Wall Street trading, after it beat revenue expectations last night.
Investors have driven ARM’s share price up by 36% to $105.14, after it lifted its outlook for this year, citing a recovery in the smartphone market and high demand for artificial intelligence technology.
Arm is the biggest supplier of design elements for the processing chips used in products from smartphones to games consoles.
It floated in New York last autum at an offer price of $51 each, so anyone who bought shares in the IPO have now doubled their money.
The dollar has strengthened following today’s drop in US jobless claims, knocking the pound down half a cent to $1.258.
Over in the US, the number of people filing new claims for unemployment support have fallen.
There were 218,000 fresh ‘initial claims’ for welfare support last week, a drop of 9,000 compared to the previous week.
That suggests that US firms are continuing to hold onto staff, following a larger-than-expected rise in new jobs created in January.
Initial UI claims fell to 218k and continuing claims down to 1.871m. This partially reverses the jump from last wk's report and returns claims to its recent trend of fairly low initial claims and continuing claims that are up ~10% YoY pic.twitter.com/W2AwAvWZpR
— Daniel Zhao (@DanielBZhao) February 8, 2024
Initial unemployment claims dropped in the latest data after rising in the prior 2 weekly reports.
— Caleb Franzen (@CalebFranzen) February 8, 2024
As I've been saying, even with the recent acceleration, initial claims have largely been moving sideways for the past 2 years.
The 4-week moving average started to rise recently pic.twitter.com/dGj4kAexNr
CBI boss warns against large-scale tax cuts driven by 'short-termism’
The boss of the Confederation of British Industry has urged politicians to keep “large-scale” tax cuts off the table, and to focus on funding public services.
Speaking at a conference in Westminster, CBI director general Rain Newton-Smith said that companies do not want to see tax reductions “driven by short-termism”.
Newton-Smith argued that for growth to be truly sustainable, it must prevent persistent high inflation.
She says:
Business investment is set to fall five per cent this year, in part because of higher interest rates needed to bring inflation down. As one business leader told me, they don’t want to see tax cuts driven by short-termism which leads to higher interest rates. They want stability so they can invest for the future.
To fund our public services with an ageing population, we must keep large-scale tax cuts off the table.
Last week, the International Monetary Fund issued a strong warning to Jeremy Hunt against cutting taxes in his budget in March, stressing the need to boost key areas of public spending instead.
Hunt had been hinting that the budget would include tax cuts. But following the IMF’s intervention, he played down the prospect, saying there was less room for tax reductions than hoped.
Newton-Smith also called for green investment to be increased from £10bn to £50bn per year by 2030, so the UK can hit its net zero target by 2050.
She says:
The majority will need to come from the private sector. But public sector investment in green technologies is essential as a catalyst to crowd that in. Whether that is de-risking Sustainable Aviation Fuels through contracts for difference, or helping our public buildings to move to low carbon heat and our social housing sector to insulate homes, lowering bills.
Just look at the Port of Tyne, a fantastic CBI member I visited two weeks ago. Last year they secured £100m for their Tyne 2050 project – half catalytic public investment; half all-important private sector investment.
But in the UK, overall public sector investment is too low and too volatile. The average OECD country invests nearly fifty per cent more.
That’s a timely intervention, with the Labour party expected to scale back its £28bn green investment programme today….
….a decision that has been criticised by environmentalists, progressive campaigners, and policy experts today:
Newton-Smith was appointed the CBI’s director last spring, after her predecessor Tony Danker was dismissed after the Guardian revealed unrelated complaints about his conduct in March.
The CBI settled with Danker for an undisclosed sum this week and reiterated that his departure was unrelated to other allegations of misconduct at the group.
Profits at motorcycle manufacturer Harley-Davidson have dropped, as demand slows.
Harley-Davidson has reported an operating loss of $21m for the last quarter of 2023, down from a profit of $4m in Q4 2022. Net income shrank 38% to $26m.
Global motorcycle shipments fell by 7% to 179,984.
$HOG - Harley-Davidson Earnings Release 🏍️💼
— LongYield (@LongYield) February 8, 2024
Earnings Per Share (EPS): Harley-Davidson reported Q4 EPS of $0.18, surpassing consensus estimates of $0.04 by 350.00%. 📈
Revenue: Posted $1.05 billion in revenue, exceeding expectations of $930.18 million, despite a 7.80%…
Just in: US sportswear company Under Armour has raised its profit forecasts, as input costs ease.
Under Armour also lifted its annual profit margin forecasts – it now expects annual gross margin growth of 120 to 130 basis points, compared to previous expectations of a 100 to 125 basis point increase.
However, it also expects revenues to fall by 3% to 4% this financial year, “tightening the previous expectation” of a 2-4% drop.
Revenues fell 6% in the last quarter, Under Armour reports today. But gross margin increased 100 basis points to 45.2 percent, driven primarily by “supply chain benefits related to lower freight expense”.
That indicates that inflationary pressures hitting consumer goods makers are easing.
Shares have risen 6% in pre-market trading.
Updated
Santander UK have reportedly taken offence at an advert by rival Nationwide, in which Dominic West played an obnoxious bank chief.
Sky News report that Santandar UK have filed a formal complaint with advertising watchdogs over a Nationwide campaign which “discredits and denigrates” Britain’s high street banking industry.
Sky News has learnt that the Spanish-owned lender has told the Advertising Standards Authority (ASA) that the Nationwide television commercial - featuring the actor Dominic West as an arrogant bank boss - is misleading about its rivals’ approach to closing branches.
The complaint was filed during the autumn, soon after the building society campaign launched, according to insiders, but has not been publicly disclosed.
The ASA has yet to adjudicate on the advert, in which West – the boss of A.N.Y Bank - produces a massive lunch bill before proposing branch closures, declaring:
We’re not Nationwide, are we? We’re nothing like them.
German residential property posts sharpest fall on record
Over in Germany, house prices have dropped at the fastest pace on record.
The German Real Estate Index, published by the Kiel Institute for the World Economy, shows that property prices dropped sharply in Europe’s largest economy last year.
Sale prices of apartments fell by 8.9% during 2023, while single-family home price fell 11.3%. The price of multi-family homes dropped 20.1% during the year.
The report says:
The speed and extent of the current fall in real estate prices in Germany are historically unprecedented. Never since the expert committees started recording prices in the 1960s, have real estate prices fallen so quickly and sharply.
German residential property dropped sharpest on record in 2023 https://t.co/Aira4c0A2i via @laura_malsch pic.twitter.com/rROOtFrAQF
— Zoe Schneeweiss (@ZSchneeweiss) February 8, 2024
Speculation is swirling over the future of parcel delivery firm Yodel.
Yodel employs 10,000 staff and delivers goods for a number of retailers such as John Lewis, Argos and AO World.
Sky News reported yesterday that the Barclay family, who own Yodel, are scrambling to find a buyer for the company.
In response, Yodel said that it is “currently exploring strategic development options” and that “any decisions taken will be made in the best interest of our clients, colleagues and key stakeholders”.
But if a buyer can’t be found, Yodel could be forced to call in the administrators.
The Daily Telegraph reported last night that Yodel was “preparing to call in administrators”, as pressure for a cash injection mounted.
They say:
A source close to negotiations over Yodel’s future said its looming financial obligations mean an urgent cash injection is required within two weeks.
The business had never made a profit until the Government-imposed coronavirus lockdown massively boosted online shopping.
Yodel prepares to “call in administrators” as buyer sought, reports suggest https://t.co/v7OJGR6Gxo pic.twitter.com/y9HKuO4jmu
— Fleet News (@_FleetNews) February 8, 2024
Banks need to be more proactive in helping people who are struggling to pay their mortgages, reckons Alastair Douglas, CEO of TotallyMoney:
“The latest figures show that more and more homeowners and landlords are falling into arrears, and we can expect the trend to continue as 1.7 million cheap fixed-rate deals come to an end this year.
If you’re somebody who’s struggling, contact your lender and ask for support — and remember this won’t impact your credit rating. However, missed payments can — and they could stay on your credit file for up to six years. If these persist, you might end up in mortgage arrears, leading to court action and even repossession.
Banks need to be more proactive in issuing this support, and must reach out to people who they think might be in difficulty. Otherwise we won’t just be looking at a mortgage crisis, but a mental health one too.”
More than 200 companies have joined a new US initiative, created by the Biden administration, to support the safe development and deployment of generative AI.
Commerce Secretary Gina Raimondo has announced the U.S. AI Safety Institute Consortium (AISIC) this morning. Many of the major players in AI have joined, including OpenAI, Google and Microsoft, along with Meta, Apple, Amazon.com, Nvidia, Palantir, and Intel.
Financial groups JPMorgan Chase and Bank of America are also on the list, as are BP, Cisco, IBM, Hewlett Packard, Northop Grumman, Mastercard, Qualcomm and Visa, and major academic institutions and government agencies.
Raimondo says:
“The U.S. government has a significant role to play in setting the standards and developing the tools we need to mitigate the risks and harness the immense potential of artificial intelligence.”
DS Smith receives “highly preliminary expression of interest” from Mondi
There’s more takeover action bubbling in the City today.
Shares in packaging firm DS Smith have jumped 10% after it revealed it has received a “highly preliminary expression of interest” from rival, and fellow FTSE 100 member, Mondi.
It says:
The Board of DS Smith understands that Mondi is considering a possible offer for DS Smith although no proposal has been received at this stage.
There can be no certainty as to whether any proposal will be made or the terms of any such proposal. A further announcement will be made if and when appropriate.
Mondi now has until 5.00pm on 7 March to make an offer, or walk away for six months.
Updated
NatWest appoints Emma Crystal to run Coutts
It’s official: NatWest Group has announced the appointment of Wealth Management executive Emma Crystal as the new CEO of its Wealth Businesses, including Coutts, subject to regulatory approval.
Paul Thwaite, NatWest’s interim CEO, says:
“Emma’s extensive Wealth Management experience and deep client focus make her the ideal person to lead our Wealth Businesses at this time.
The UK Wealth Management market is large and growing and Emma’s proven ability to work across organisational boundaries will be invaluable in helping us deliver an outstanding client experience and achieve our growth ambitions.”
As covered earlier (9.38am), the position has been vacant since Peter Flavel was pushed out of Coutts in the row over the “debanking” of Nigel Farage.
Updated
More UK mortgage-holders fall into arrears
Rising cost-of-living pressures and higher interest rates have pushed more mortgage holders into arrears on their loans, new data shows.
UK Finance reports that the number of homeowner mortgages in arrears increased by 7% in the last quarter of 2023, to 93,680.
There was an 18% increase in buy-to-let mortgages in arrears, up to 13,570, as more landlords struggled to cope with higher borrowing costs.
But although arrears are rising, the number of homeowner mortgaged homes being taken into possession dropped by 14% in the last quarter, to 540.
Also, 500 BTL mortgaged properties were taken into possession in Q4, 11% greater than the previous quarter.
That combined total of 1,040 repossessions in Q4 2023 is almost half the nearly 2,000 repossessed in the last three months of 2019, before the pandemic.
Mortgages in arrears on the rise, but repossessions still low by historical standards. From @UKFtweets https://t.co/5vH713OK5N pic.twitter.com/dJoXSHwtc3
— Robert Cuffe (@robertcuffe) February 8, 2024
Eric Leenders, managing director of Personal Finance at UK Finance, says:
“The number of mortgage holders in arrears, whilst still low, is continuing to rise as the cost-of-living and high interest rates take their toll on households.
Importantly, help is available to anyone worried about their finances – please reach out to your lender as soon as possible to discuss the support options available. Lenders have teams of trained experts ready to help. Contacting your lender to find out what support is available won’t affect your credit score.”
NatWest Group is turning to an executive from UBS to run Coutts, its private bank, to succeed the top Coutts executive who was forced out during last year’s ‘debanking’ row involving Nigel Farage.
Sky News report:
Sky News has learnt that NatWest has lured Emma Crystal, who has also worked for Credit Suisse, to become the next chief executive of its wealth management division, which includes Coutts.
Ms Crystal, who is expected to join later this year, will replace Peter Flavel, who left NatWest last summer.
The Guardian understands Crystal’s appointment could be announced later today.
Updated
Employees at almost one in 10 UK companies are having to work extra hours to make up for worker shortages, the latest realtime data from the UK economy shows.
The Office for National Statistics says:
In late January 2024, 19% of businesses with 10 or more employees reported they were experiencing worker shortages, broadly stable with late December 2023; of those businesses, 49% reported that their employees were working increased hours as a consequence.
The ONS also reports that UK spending on debit and credit cards increased by 2% last week, and there was a small rise in footfall on the high street.
New economic activity and social change data shows increases in:
— Office for National Statistics (ONS) (@ONS) February 8, 2024
💳 @bankofengland credit/debit card purchases
🛍️ UK retail footfall
🥪 transactions in most @Pret locations
In contrast, demand for fuel per transaction fell.
➡️ https://t.co/TqexLQnWOv pic.twitter.com/ULcvVCbFoU
China is grappling with "evil twin" of deflation
China’s deflation problem highlights the country’s economic malaise, explains Susannah Streeter, head of money and markets at Hargreaves Lansdown:
While inflation is still an unruly force central banks are attempting to tame in many nations, China is grappling with its evil twin. Deflation.
Prices have fallen at their steepest rate since 2009, with the consumer price index falling 0.8% compared to a year earlier. Although falling food prices, particularly pork, is partly behind the trend. This was exacerbated by sharply lower demand during the month compared to last year due to the lunar new year celebrations landing in February, but underlying weakness remains with non-food inflation falling back.
China is still mired in a property slump, affecting wealth perceptions and making consumers more cautious about spending big. Small stimulus measures aimed at increasing trading activity and lending into the economy have helped revive the Chinese stock market this week, but these are likely to be sticking plasters rather than a longer-term treatment for sluggish economy.
Updated
Shipping giant Maersk has warned that oversupply in the sector will hit its earning this year, prompting it to suspend its share buy-back programme.
In new financial guidance for 2024, Maersk says it could make an underlying loss of up to $5bn this year, although it could manage to break even.
Earnings before interest, tax, depreciation and amortisation this year will be between $1bn and $6bn, Maersk predicts, down from $9.6bn in 2023.
And while the Red Sea crisis is pushing up shipping rates, market conditions are likely to remain challenging, it says.
Vincent Clerc, CEO of A.P. Moller-Maersk, explains:
The current market remains one of robust volumes, but while the Red Sea crisis has caused immediate capacity constraints and a temporary increase in rates, eventually the oversupply in shipping capacity will lead to price pressure and impact our results.
The ongoing disruptions and market volatility emphasize the need for supply chain resilience, further confirming that Maersk’s path toward integrated logistics is the right choice for our customers to effectively manage these challenges.
Having benefitted from soaring shipping rates in the pandemic, Maersk’s earnings have been hit by the drop in prices to ship containers around the world.
For 2023, it has reported profits on an EBIT basis of $3.9bn, down from $30.8bn in 2022.
Last November, it announced 10,000 job cuts, due to the drop in demand triggered by the global economic slowdown.
Shares in Maersk have dropped 13% this morning.
SSE hit by wrong sort of weather
Bad weather has hampered energy firm SSE’s output from renewable power sources last year, and slowed the rollout of new wind turbines.
SSE has reported that its SSE Renewables output over the last three quarters was around 15% below plan, having been hit by “mixed weather conditions, short-term plant outages” and the rephasing of its flexible hydro output.
SEE says that “exceptionally still and dry weather conditions” hit output at its onshore wind, offshore wind and hydro business.
Also, work on an offshore wind farm at Dogger Bank A has been disrupted by a series of storms.
SSE says:
Turbine installation on Dogger Bank A has been affected by challenging weather conditions with vessel availability and supply chain delays further impacting progress.
SSE points out there have been 10 named storms in the 2023/24 season – Agnes, Babet, Ciaran, Debi, Elin, Fergus, Gerrit, Henk, Isha, and Jocelyn.
John Moore, senior investment manager at RBC Brewin Dolphin, says:
“Unfavourable weather has had a negative impact on SSE, showing it is not all plain sailing for the renewables sector even as the policy environment improves.
Despite this, the company remains on target to meet its previous guidance for the year, with the transition to a rebased dividend that is part of its plans for shareholder returns combined with significant capex investment.
SSE’s shares are down -10% in the year to date, but it has strong prospects and a good amount of momentum, putting the company in a strong position – even if inclement weather conditions cause a blip in performance in the short term.”
Updated
Unilever CEO says "our competitiveness remains disappointing"
The new boss of consumer goods giant Unilever has admitted that its competitiveness “remains disappointing, despite a return to sales growth and a pick-up in profit margins.
Unilever’s CEO, Hein Schumacher, told the City:
“Today’s results show an improving financial performance, with the return to volume growth and margins rebuilding.
However, our competitiveness remains disappointing and overall performance needs to improve. We are working to address this by improving our execution to unlock Unilever’s full potential.”
Unilever reported underlying sales growth of 7.0% for 2023 – due to a 6.8% increase in pries, and just 0.2% in sales volumes.
Underlying price growth decelerated from 10.7% in the first quarter of last year to 2.8% in the fourth quarter, due to a slowdown in raw material inflation during 2023.
Nutrition and Ice Cream faced the highest input cost inflation in 2023 which translated into higher pricing, Unilever says.
Only around a third of the company’s brands increased their market share last year, as customers in Europe shifted to supermarket brands, while Americans bought more “super-premium” goods.
2023 Full Year Results
— Unilever (@Unilever) February 8, 2024
Our Growth Action Plan is underpinned by one simple premise: the need to do fewer things, better, with greater impact. We expect the benefits to build throughout 2024.
Read more here: https://t.co/2aQ6ejaPmI#UnileverResults $ULVR $UNA $UL pic.twitter.com/zbSU3yQY3f
Unilever’s board has approved a share buyback programme of up to €1.5 billion to be conducted during 2024.
Shares in the company have jumped by 3.4% in early trading.
Updated
In the financial markets, Japan’s Nikkei share index has closed at its highest level in 34 years.
Investors in Toyko drove the Nikkei up to its highest closing level since February 20.
Sentiment was boosted by a rally on Wall Street, where mega tech stocks continue to shine.
Shares also rallied after a high-ranking Bank of Japan (BOJ) official signaled that the central bank would only tighten policy gradually.
Reuters explains:
BOJ Deputy Governor Shinichi Uchida said in a speech that came in the middle of the morning trading session that conditions were falling into place for an exit from massive stimulus, but “even if the BOJ were to end our negative interest rate policy, it’s hard to imagine a path in which it would then keep raising the interest rate rapidly.”
Bloomberg reports that economists see deflation pressure in China continuing for at least another six months, largely because of the real estate turmoil.
While China was able to reach an official growth goal of “around 5%” in 2023, repeating a similar performance this year may be difficult without bigger efforts by policymakers.
“The prolonged property woes and stock market volatility hurt household sentiment,” said said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd.
Housing market outlook has turned modestly brighter, say surveyors
Conditions are brightening in the UK property sector, surveyors say.
Buyer demand, agreed sales, and new instructions all moved out of negative territory in January, the latest survey from The Royal Institution of Chartered Surveyors (RICS) this morning shows.
Surveyors also reported that house prices were lower, but at a slower pace than in recent months, RICS says, with signs of stabilisation in London, Scotland and the North West of England.
RICS Senior Economist, Tarrant Parsons, says:
“The UK housing market has seen a continued improvement in buyer activity through the early part of the year, supported by the recent easing in mortgage interest rates.
Although sales volumes through much of the year ahead are likely to remain relatively subdued compared to the longer-term average, the outlook has now turned modestly brighter on a consistent basis over the past few survey reports.
After a year of “inflated” gloom, optimism appears to be seeping into @RICSnews surveyors consciousness. Their Jan 24 report showing an inc in buyer demand (+7%) & agreed sales (+5%). pic.twitter.com/sH48Wmu1GP
— Emma Fildes (@emmafildes) February 8, 2024
Despite national house prices residing in neg territory, -18%, this reading has edged up over the past 5mths. Looking ahead, surveyors pegged London, Wales, North West, Scotland & Northern Ireland to make the biggest come back in the next 3mths pic.twitter.com/UOa50poJFu
— Emma Fildes (@emmafildes) February 8, 2024
Here’s Ipek Ozkardeskaya, senior analyst at Swissquote Bank, on today’s China’s inflation data:
China announced this morning that deflation accelerated in January to -0.8% y-o-y, faster than a 0.5% deflation penciled in by analysts and the fastest price drop in over 14 years. In plain English, it means that the Chinese efforts to boost growth and bring inflation back are not working according to the plan.
Money poured into the Chinese system doesn’t circulate in a way to stimulate economy – blame people who lost confidence – and the radical measures that the government has put in place to prop up equity valuations hardly help China’s battered stock markets to get back on their feet.
Today, sentiment in the CPI 300 index is mixed. I was writing yesterday that a deeper than expected deflation number will certainly encourage Chinese authorities to announce more stimulus measures. But measures alone won’t help getting the Chinese markets’ heads above water if investors don’t play along.
Another worry about the Chinese recovery is that because the Chinese dream has been dashed by a $7 trillion selloff in the equity markets, many could be tempted to take their loss and walk away in the slightest recovery. In summary, the road to a sustainable recovery seems far away.
ING: This is probably the bottom for China's inflation
China’s January’s -0.8% annual inflation reading could mark the low point in the current cycle, according to Lynn Song, ING’s chief economist for Greater China.
Song argues that China is not trapped in a “deflationary spiral”, and predicts that pork prices could pick due to demand in this month’s Lunar new year holidays.
Song explains:
Sequential data paints a more upbeat picture. In MoM terms, headline CPI rose 0.3%, food CPI rose 0.4%, and non-food CPI rose 0.2%. While a far cry from the above-target inflation levels seen in many other economies, these numbers do not imply China is stuck in a deflationary spiral.
Furthermore, China’s pork cycle also indicates that the drag from pork prices will also fade in the coming months. While still a major drag in January’s data, pork price inflation has actually risen for the past two months, and the December 2023 MoM change in the pig stock was the largest decline since March 2022. With expected demand for the Lunar New Year holiday in February, this could return to positive growth in next month’s release.
As such, considering the more favourable base effects for February’s data, we see a high likelihood that January’s data could mark the low point for YoY inflation in the current cycle.
Introduction: China’s prices fall at fastest rate in 15 years as economy fights deflation
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Consumer prices across China are falling at the fastest pace in 15 years, as its economy struggles with weak demand.
China’s consumer price index fell 0.8% year-on-year in January, data released this morning showed. It’s the fourth straight month of declines, and the biggest contraction since 2009 after the financial crisis.
The inflation rate was dragged down by falling food prices, which dropped by 5.9% year-on-year in January.
Pork prices dropped by 17%, and were a major drag on inflation, while fresh vegetables were 12.7% cheaper than a year ago and fruit cost 9.1% less.
🇨🇳#inflation #China #reporting
— FinNews (@FinNews_) February 8, 2024
China - consumer inflation CPI (Jan)
m/m = +0.3% (expected +0.4% / previously +0.1%)
y/y = -0.8% (expected -0.5% / previously -0.3%)
Traditionally, the media write about deflation in China
The fall in consumer prices in January was the strongest… pic.twitter.com/75KSrAVMSA
China’s factories continued to cut their prices last month, too. The producer price index (PPI) slid 2.5% from a year earlier in January after a 2.7% fall the previous month.
China’s consumer prices dropped into deflationary territory last summer, and prices have been flattish since.
Its economy has struggled as the bounceback following the lifting of Covid-19 restrictions falters, and as its indebted real estates sector contracts.
The drop in annual inflation puts more pressure on Beijing policymakers to take fresh steps to stimulate the economy.
China’s stock markets have rallied a little today.
Kyle Rodda, senior financial market analyst at capital.com, says the markets have “ostensibly reacted favourably” to disappointing Chinese price data.
While a very concerning sign for China’s economy, which could be becoming entrenched in a debt and deflation cycle, the markets arguably responded in a positive way to the news.
Perhaps markets see the terribly low number as a potential catalyst for more muscular monetary or fiscal stimulus from the central government, which, up until this point, has been moderate in applying countercyclical policy.
China CPI weakens further to -0,8%. Keeps the deflation story alive but it also adds pressure for stronger government support. #china #dkøko #dkfinans pic.twitter.com/XOScmyKZix
— Frederik Engholm (@FrederikEngholm) February 8, 2024
The agenda
9.30am GMT: Latest weekly data on UK economic and business activity
1.30pm GMT: US weekly jobless claims figures
3pm GMT: Bank of England policymaker Catherine Mann to give speech: “Mind the Gap(s): Inflation Data and Prospects”
