US annual consumer price inflation rate jumped to 8.5% in March, up from 7.9% in February. German annual producer price inflation (different from CPI) topped 30% in March, its highest level since the German Federal Statistics Office began collecting data 73 years ago. In the UK, inflation hit a 30-year high of 7.0% in March. Inflation globally is being fuelled by surging energy and commodity prices. There may be some respite for consumers this month as oil prices have fallen back recently. Brent crude is trading around $100 to $105 a barrel having been at $140 in early March. Responding to rising inflation expectations, central banks around the world are under increasing pressure to raise rates. The Federal Reserve may raise rates by 1.5% next month and the Bank of England is also expected to raise rates again in May in what would be the first quadruple back-to-back interest rate hikes in a quarter of a century.
Chart of the month: The UK GfK Consumer Confidence Indicator
Source: Trading Economics, GfK, Blend Network
Politics & Economics
- The market is now expecting the Bank of England to raise rates again in May in what would be the first quadruple back-to-back interest rate hikes in a quarter of a century. Confidence in a rate rise strengthened as new data pointed to a tight jobs market, with vacancies still rising and pay climbing but failing to keep pace with inflation[i].
- Inflation hit a 30-year high of 7% in March, up from 6.2% in February, intensifying the pressure on Boris Johnson and Rishi Sunak to ease the cost-of-living squeeze. The monthly rise was the highest for the time of year since ONS’ records began in 1988[ii].
Business
- According to the British Retail Consortium, growth in UK retail sales slowed last month as fears over the rising cost-of-living led to the sharpest drop in consumer confidence since the 2008 financial crisis. Sales rose by 3.1% YoY in March, significantly down on the 6.7% increase in February and the 12-month average growth rate of 10.3%[iii].
- In its latest Global Economic Outlook, the IMF has cut its global forecast and also downgraded its outlook for the UK. The UK’s economy is now predicted to grow by 3.7% this year, down from the previous forecast of 4.7% made in January[iv].
Real Estate
- According to Nationwide, Q1 saw the largest increase in house price since Q4 2004[v]. With 15.3% annual growth in average house prices, Wales remained strongest performing region in Q1 2022, while London remained weakest with 7.4% YoY growth.
- Rightmove expects market to slow in the second half of the year as macro headwinds lead to a more evenly balanced market, although demand will still outstrip supply[vi].
Equity Markets
- Despite chaotic commodity markets, uncomfortably high inflation, and global economic growth forecast continuing to be marked down as a result of the war in Ukraine, global equity markets have remained suspiciously calm despite some minor jittery episodes. A recent article in the FT asked what explains the calm in global stock markets[vii]. It concluded that there are warnings of systemic risks still to be uncovered.
FX & Commodities
- CEOs from four of the UK’s leading energy suppliers called for more government action to cushion the impact of prices that are expected to surge in October ahead of peak winter demand. Power and gas prices rose 54% from April after Ofgem increased its cap on the most widely used tariffs following record wholesale global gas prices[viii].
- Food prices are at levels never seen before. The United Nations Food and Agriculture Organization (FAO) Food Price Index averaged 159.3 points in March, up by 34% year on year, registering the highest level since its inception in 1990[ix].
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[i] Source: https://bit.ly/3Euoc6m
[ii] Source: https://cnn.it/3rEZMlt
[iii] Source: https://bit.ly/3K0do17
[iv] Source: https://bit.ly/3vvwk2x
[v] Source: Nationwide House Price Index, https://bit.ly/3OmMtzP
[vi] Source: Rightmove House Price Index, https://bit.ly/3KWC8Zs
[vii] Source: https://on.ft.com/3JSFRWE
[viii] Source: https://reut.rs/3k04Pso
[ix] Source: https://bit.ly/37xu4zR
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