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‘Horrible.” “Shocking.” “Terrible.”
No, it’s not the response to the Archbishop of Canterbury’s latest lecture. These are just some of the words used by analysts to describe January’s data on producer price inflation.
The price paid for goods leaving factories rose 5.7% year on year, which is the highest rate since 1991. Wholesale food prices were up 8.5%, while petrol prices were up by almost 23%. Overall, input prices were up an incredible 18.9%.
There was some comfort in the fact that this morning’s consumer price index reading, rising at an annual rate of 2.2%, was lower than expected. But with input prices rising so rapidly, and the pound weakening, it remains to be seen how long that can be sustained.
It looks like interest rates might not be falling as rapidly as the City had hoped…
Inflation is still very much a threat, despite the impending global slowdown. And most worrying about yesterday’s inflation figures, says Tom Stevenson in The Telegraph, was the fact that it’s not all about food and energy prices anymore. “Import prices… are also on the move.”
Cheap imports, mainly from
But with inflation rising sharply in
Just in passing, it does make you wonder if the way we look at inflation is fundamentally flawed. Is it a bad thing if the price of shoes falls? Well, no, because that represents the benefits of higher productivity – you get more for spending less.
And is it a good thing that the price of houses rockets? Well, no, because you end up spending more on an asset that is no better than it was ten years ago – in fact, it’s worse because it’s older. It means that people like hairdressers and other local service providers end up charging more so that they can afford accommodation. So arguably, setting an inflation target that ignores house prices, but treats falling shoe prices as the enemy, is pretty stupid. This whole subject is a can of worms all by itself, but I’ll try to look at it in more depth, in a future Money Morning.
Hugo Chavez’s empty threats on oil
Meanwhile, helping inflation along was Venezuelan president Hugo Chavez. The populist prattler was back in the news with his threat to stop sending oil to the
As Cyrus Sanati points out on Breakingviews.com, Mr Chavez’s threat will come to nothing. Most of
So if
Mr Chavez’s little outburst is probably more of a distraction technique for the wider electorate. A bit of anti-US drum-banging always goes down well – but it’s never a good idea to pick battles you can’t win.
Of course, Mr Chavez is by no means the only politician to indulge in distraction tactics. Yesterday we heard from George Bush that the
As we all know, a long-term investment is simply a short-term one that hasn’t worked out. So when Mr Bush says the
Turning to the wider markets…
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On the Continent, the Paris CAC-40 fell 26 points to end the day at 4,682. In
Across the Atlantic, early falls prompted by AIG’s news were later cancelled out by strength in the technology sector as Yahoo’s rejection of Microsoft’s $44.6bn takeover approach prompted hopes of a higher offer to follow. The Dow Jones added 57 points to close at 12,240. The tech-rich Nasdaq was 15 points higher at 2,320. And the broader S&P 500 was 7 points higher at 1,339.
In
Japanese Nikkei was up 4 points, at 13,021 and the Hang Seng was 305 points higher, at 22,921.
Xstrata rejects Brazilian bid
Crude oil had fallen back to $93.16 this morning, following yesterday’s $2 rally in
Spot gold had risen to $924.20 this morning. Silver hit a 27-year peak of $17.60.
And platinum rose to a fresh record high of $1,965.
Turning to forex, the
pound was at 1.9446 against the dollar and 1.3399 against the euro. And the dollar was at 0.6888 against the euro and 106.98 against the Japanese yen.
And in London this morning, shares in miner Xstrata fell by as much as 2% this morning on reports in the FT that the miner had rejected a $76m bid from Brazilian iron ore producer Cia. Vale do Rio Doce.
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