rffrydr
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Joined: 30 Oct 2005
Posts: 16937
Location: Sunny California
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 Posted: Tue Mar 06, 2012 4:39 pm Post subject: |
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UK commodity inflation update courtesy Cap. Econ via alphaville:
| Quote: | The recent rise in oil prices has sparked fears that CPI inflation will not fall as fast as hoped. However,
the focus on oil prices ignores the fact that other commodity prices have risen by less, if at all.
Oil prices have risen by 11% (in sterling terms) since the start of the year. Petrol prices rose by 1.5p to
135p per litre in February and, if they follow oil prices up, will increase further to just over 140p. If so,
the rise in petrol prices will have boosted inflation by 0.3 percentage points (pp) by the end of March.
Nonetheless, there are good reasons to think that oil prices will fall back this year.
TT
Even if they hold steady, energy’s
contribution to inflation should still fall, due to even sharper rises in oil prices last year. (See Chart 1.)
Furthermore, whereas the rises in oil prices in 2008 and 2011 coincided with increases in a whole
range of commodity prices, this year’s increase has not been so broad-based. Indeed, while oil prices
are just over 5% higher than a year ago, agricultural commodity prices are about 20% lower and cotton
prices about 60% lower. (See Chart 2.)
Indeed, taken at face value, the past relationship between cotton prices and clothing inflation suggests
that the latter could fall from the 3.3% rate recorded in January to the -10% rates seen in the 2000s.
TT
nd as Chart 4 shows, food inflation could fall from 3.6% to close to zero later this year.
What’s more, these other commodities have a bigger influence on CPI inflation than oil prices. Food
and clothing together account for 17% of the CPI inflation basket, compared to 10% for energy
(although the rise in energy prices might also put indirect upward pressure on core goods prices).
In all, then, higher oil prices will mean that inflation falls at a slower pace than otherwise – and might
even rise again in the near-term. However, a look at the wider commodity picture suggests that we
are not yet heading for a repeat of the inflation spikes seen in the past few year |
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Today is the Tomorrow you worried about Yesterday! |
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