Slumpflation? UK inflation jumps to 3.5%
A bump in the night or a worrying sign that higher inflation will impose deal cuts on the real incomes of people taking pay freezes or the millions of savers being offered derisory interest rates on their deposit accounts? Consumer price inflation jumped to an annual rate of 3.5% last month prompting the Governor of the Bank of England to unlock the quill pen and write a letter of explanation to the government.
The reasons behind the latest surge in inflation look clear cut
1/ The lagged effects of the fall in sterling on import prices
2/ Much higher oil and gas prices and rising import prices for metals and other raw materials
3/ The effects of the reversal of the temporary cut in VAT (nb VAT is likely to rise to 20% by year end)
4/ Less discounting in the January 2010 sales compared to the same time last year when the UK retail sector looked close to melt-down!
And we can always blame the snow ........!!!!!
5/ Snow last month raised the price of certain seasonal vegetable prices, with cauliflowers rising by the highest amount since at least 1996 and the cost of carrots doubling
Snow as the cause of a spike in inflation .... do you get my drift?
Expect inflation to come down in the months ahead - the pricing power of retailers and manufacturers remains very weak and there is probably a substantial margin of spare capacity in the economy following the 5% decline in real output last year.
Britain is no longer a high inflation country despite the gloomy predictions of those concerned about the size of quantitative easing.
Economist: Storm before the calm
Stephanie Flanders considers the latest inflation figures (BBC news)
Assorted Links (5 Jan 2010)
1/ Telegraph - Boiler scrappage scheme starts today - details of the latest consumer subsidy, following on from the car scrappage scheme. This BBC news video provides further background.
2/ Vox EU - Exploring the waterbed effect - an interesting article on the so-called waterbed effect, where regulation to limit or cut charges such as minimum banking charges for going overdrawn, or roaming charges set by mobile phone operators leads suppliers to raise prices elsewhere to by-pass the effects of regulation.
3/ The Times - Cambridge University goes to the bond market - Cambridge is planning to raise up to £400 million from its first bond issue, following a trend set by Ivy League institutions in the United States to turn to the money markets for funding. The money is designed to fund long term investment, and the university is expecting a AAA rating! Jim has a related blog post on Manchester United and bond finance.
4/ Telegraph: IMF: ‘Commodity prices to rise in 2010’ - the prices of many commodities are likely to increase further because of strong demand and global economic expansion moving at a faster pace. Higher commodity prices have demand and supply-side effects on the economy.
5/ Tutor2u - Wave Pools and public goods - these two video might make a great way to discuss the non-rival nature of public goods and the rival nature of private goods!
Is UK manufacturing turning a corner?
Whisper it quietly but there are signs of a rebound in orders and production in UK manufacturing industry. In recent weeks we have seen a cluster of articles suggesting that some of the industrial production that left the UK during an age of out-sourcing is now starting to return home. Having plunged last year manufacturing ouptu appears to have stabilised and today we heard news from the Chartered Institute of Purchasing & Supply’s purchasing managers’ index that UK manufacturing activity grew at its fastest pace in more than two years in December 2009. And last week Last week, a survey by the Engineering Employers Federation revealed that one in seven British companies had repatriated manufacturing operations to the UK in the past two years. Keep in mind that manufacturing contributes less than 12% of UK GDP - although many service sector jobs and businesses depend directly on the health of the industrial sector. Manufacturing may be making a comeback because of:
1/ Sterling: The weaker value of sterling against the Euro and the US dollar has given manufacturing industry a competitive boost
2/ Relative costs and supply issues: Higher than expected costs and quality problems have been cited by some businesses that have outsourced some manufacturing - high wage inflation in fast-growing emerging market countries has narrowed some of the unit labour cost gap between the UK and rivals
3/ Oil and transport costs: The high price of oil has increased the cost of shipping goods around the world encouraging producers to focus output closer to the market
4/ Overseas markets: Signs of a recovery in some of the UK’s main export markets - the majority of manufacturing production in the UK is exported, manufacturing industry in Britain is sensitive to the global economic cycle
Sunday Times (3rd Jan) Made in Britain: How manufacturing is returning to the UK
Scotsman: 15% of British firms switching production back to UK
Assorted Links (3 Jan 2010)
1/ Wall Street Journal - Secrets of the Economist’s Trade: First, Purchase a Piggy Bank - are economists the cheapskates this article suggests?
2/ The Times - It was dead wood, now lumber is the ‘new oil’ - a super piece on a natural resource where demand drives the price in the short run. Lumber is poised to become the crude oil of the new decade. It all depends, analysts say, on Chinese building codes and the financial mathematics of 150 million new kitchen tables
3/ Open2 Net guide to economics
4/ Independent - The world in 2010: China continues its unstoppable economic charge -
5/ The Times - An outside bet for next emerging economy: sub-Saharan Africa - a fascinating piece by Carl Mortishead on the economic potential of Sub-Saharan Africa and the increasingly competitive battle between the United States and China for Africa’s vital economic resources.
Assorted Links (1 Jan 2010)
1/ Why, despite the financial crisis, do we still put our faith in economists? (Edmund Conway in the Telegraph)
2/ The price of liquids - a fascinating chart that shows how much HP printer ink costs compared to human blood, vodka, crude oil and other precious liquids.
3/ World price of raw sugar doubles in 2009 - poor harvests in Brazil explain some of the rise in price. This BBC news video explains some of the effects.
4/ UK house prices end decade 117pc higher, says Nationwide (Telegraph)
5/ US votes for Chinese steel duties (BBC Global Business) - Duties ranging between 10% and 15% are now set to be imposed on imports of Chinese steel pipes
Impact of global recession on developing countries
Open economies, which are highly trade dependent and export only a small range of products to few markets, are affected most by the trade transmission mechanism. This helps to understand the wider economic and social effects of the 2009 global downturn.
The recession has affected developing countries in many different ways including the following:
Green gold in Tanzania
Lots of examples of opportunity cost and market failure in this video report from Africa about jatropha, a crop that can be used to produce biofuels. It has a number of advantages; it can’t be used for food, so avoids the dilemma of competing demand or supply suffered by crops like maize and soya, it grows naturally in tough conditions and is fairly drought resisitant so can be cultivated in areas which won’t support other crops, and is poisonous to animals so crops are unlikely to be spoiled by animals looking for food. On the other hand it takes some years to reach productive maturity, so requires investment, and time and money put into producing it could be used to grow food crops for people and livestock in exceptionally poor areas of Africa. There are a number of small scale european businesses trying to invest in this part of the world by setting up plantations on a commercial scale, but they face a long timescale to receive any payback on that investment, once they have negotiated with government and local tribes for access to the land and local labour supply and developed the infrastructure to support transport power and irrigation. How should the government intervene, in order to ensure short term provision of food and facilities for local people living on a dollar a day, and also long term potential for inward investment in infrastructure and jobs? What are the advantages and disadvantages of allowing this to be developed by outside investors rather than by local co-operatives?
Google Wave: Trade deficits and surpluses
We were back on Wave last night considering some of the wider arguments surrounding persistent trade imbalances. Are trade imbalances a problem?
We are hoping that - as more Economics teachers migrate to Google Wave - we will be able to schedule collaborative sessions (typically lasting between 45 to 60 minutes) where we can generate ideas, arguments and perspectives in real time and support eachother’s teaching on chosen topics or issues.
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Fast growing developing countries may mean end of era of cheap oil
A good video to use here when teaching the economics of the oil market/
Peak oil theory and economic implications
There is a highly relevant article on the depletion of global oil reserves and how this might affect UK energy policy in the Telegraph. The article links to concepts such as the marginal cost of extraction of different oil fields and the viability of exploring for oil at different prices.
“The timing of the global peak remains uncertain but the window is rapidly narrowing. Since 1993, the world has produced half as much oil as was produced in the preceding century and now uses as much oil as the UK has ever produced in only 10 months. On current estimates, we have used between 28pc and 56pc of recoverable conventional oil – with much of what remains being located in smaller fields in less accessible locations, or requiring “enhanced recovery” techniques to extract.”
The rest of the article can be found here
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