Surge in UK inflation

The latest figures for consumer price inflation were far worse that expected. Consumer prices increased by 0.8% in April taking the annual rate of inflation to 3.0% - right at the top of the level allowed by the government as part of the inflation target. Both goods and service price inflation moved higher as the UK economy struggles under a series of cost-push inflationary pressures. I have attached a PowerPoint file showing some of the key inflation charts.

Has competition in postal services delivered?

Two years on from the liberalisation of the postal services industry, has this supply-side policy to make the market more contestable made any noticeable difference to the quality of service, prices and investment in delivery? A new report casts doubt on the changes to the industry since the market opened up to competition at the start of 2006 to businesses such as UK Mail. Robert Peston reports for the BBC in this video clip. His feature asks whether the universal service provision is a millstone round the neck of the Royal Mail which remains in deep financial trouble.

Haulier closes down

This ninety second video clip from BBC news is a short but powerful clip to show when discussing the effects of rising fuel prices on the profitability of a business - no bells and whistles, just a face to face interview with the owner of a haulage firm who has decided to quite because of the cost of diesel and his inability to pass on costs to consumers, the result, 21 redundancies and a firesale of the assets of the business.

Buy to let - a problem of over-supply?

The Financial Times carried a super short piece on the buy to let market today - ideal for students preparing for AQA Unit 3 - Markets at Work. According to the piece

“Rents are tumbling on some city centre flats (in cities such as Liverpool and Nottingham) as buy-to-let investors pay the price for oversupply.....The news will make uncomfortable reading for investors who bought into the boom in development of buy-to-let flats in these city centres, only to find that capital values and now rental income are falling......The cost of renting compared with the cost of servicing a mortgage on an equivalent flat or house has narrowed significantly over the year to the end of March, with both increasing. Rental costs were 75 per cent of mortgage costs in the first quarter of 2007, rising to almost 81 per cent in the first quarter of 2008.”

Have a read of the article and think about the position from the point of view of the buy to let landlord - what are the costs and benefits of their investment in the property market - and also from the point of view of tenants looking for somewhere to live.

(i) Using a supply and demand diagram, explain how a situation of over-supply can occur and what happens to prices as a result

(ii) What might happen to the property market in Nottingham if some buy-to-ler investors decide to sell some of their stock of properties?

The rest of the article can be found here

Chart of the Day: The Falling Dollar and Oil at $110

Crude oil prices are spiking higher again driven higher by signs of further reductions in oil stocks (inventories) - which creates a stampede among investors to buy whatever stocks might be available - but also by the continuing decline in the value of the US dollar. Covered in this BBC news article and also here in the International Herald Tribune.

Revision: Stocks and Prices

Many AS microeconomics questions revolve around the volatility of soft commodities such as coffee, crude oil, rubber and tea and harder commodities such as iron ore, copper, tin and platinum. It is important to be aware of the important link between stocks and changes in market prices, especially in an age when commodities have become a new asset class with much more speculative activity than before.  Stocks are also important in many other sectors of the economy – for example the property market and the market for carbon permits.

Revision note
Revision_Stocks_Prices.pdf

Powerpoint charts
Stocks_and_Prices.ppt

Revision: Business Pricing Strategies

This two page revision note is designed for A2 economists and considers some of the factors that can influence the pricing behaviour of businesses - notably a move away from maximising behaviour when setting prices and the impact of increased market contestability and technological change.

Revision: Console wars

I will be using this table with my A2 microeconomics group as a revision exercise - partly to discuss competition in a contestable market; the factors that determine pricing power and other micro concepts such as elasticities of demand, economies of scale and hardware product cycles. How else could the data be used? Suggestions please! I have made the original word document available for download below.

Console prices
Console_Prices.doc

Chart of the Day: Imported Inflation into the UK

Our chart for the day is linked to the news that the pound has fallen to an historic low against the Euro. One of the consequences of a depreciating currency is that the prices of many of the goods and services we import from overseas goes up potentially leading to a fresh burst of cost-push inflation.

Chart of the Day: EU Wheat, Bread and Cereal Prices

Our chart today links what has been happening to international wheat prices with the cost of basic groceries such as bread and cereals in the shops in the UK. Globally, wheat prices have been surging higher over the last few years - look at the movements in European Union milling wheat prices since the start of 2006. Changes in raw commodity prices invariably feed through into the prices of products on the supermarket shelves albeit with a time lag. (Can you spot any in the chart). And certainly in recent months, the CPI for breads and cereals has moved sharply higher as food manufacturers have passed on some of their higher costs. The CPI data suggests that bread and cereal prices have risen by over 12% since the start of 2005, yet milling wheat prices have jumped by more than 250%? How can you explain this difference? And who gains from the spike in grain prices - good news for farmers perhaps? Not if you are rearing cattle and having to find the money for more expensive grain as feed.