National: December Inflation Falls, Retail Sales Increase

Inflation fell in December to 2.1% from 2.3% prior month at the same time as sales values increased by almost 4% as volumes increased by 3.0%.

Despite all the fears for retail sales over Christmas, the official figures from the ONS suggest an increase in both sales and volume although overall the High Street remains in a vulnerable state as online sales increased by 14% accounting for 20% of all retail sales.

Inflation falls:

Service sector inflation held at 2.4%. The fall in the headline rate was largely attributed to goods inflation, down to 1.8%.

A drop in petrol prices assisted the move, reflecting the continued weakness in oil prices. Oil prices Brent Crude averaged $57 dollars compared to $64 dollars last year.

Manufacturing output prices slowed to 2.5% from 3.0% in November. Input costs slowed to 3.7% from 5.3% prior month. Softer petroleum prices helped but the weakness of Sterling $1.27 v $1.34 in December 2019, offset some of the gain. For the year as a whole, most analysts now expect inflation to average around 2.3%. Good news for households as earnings are expected to rise by around 3% maintaining a positive outlook for real earnings.

Good news also for the Bank of England. There will be little pressure on the MPC to raise rates during the current year if current trends are maintained. Not so good for Sterling as the Fed is expected to raise rates by a further 50 basis points through the year. The interest rate differential will push the dollar higher and Sterling lower despite the rally this week.

Retail Sales Slow …

Despite all the fears for retail sales over Christmas, the official figures from the ONS suggest sales values increased by almost 4% as volumes increased by 3.0%. Headlines from the High Street must be kept in perspective. Online sales increased by 14% accounting for 20% of all retail sales. Department stores, clothing and footwear are particularly vulnerable to on line penetration. The pressure on high street infrastructure will continue forcing store rationalisation and footprint contraction.

The pattern of sales is changing. Imagine a time within the next five years when 25% of transactions will be online. A huge extraction of activity on the high street and in shopping malls. Who can remember the idea of January Sales. New Year Discounts yielded to Boxing Day Breaks. Blue Star and Blue Tick Deals appeared in the run up to Christmas. Then came Black days on line. The significance of December no longer the dominant feature of the final quarter.

Profit warnings prevail as a result of Brexit prevarication. Shock news from “Build a Bear” this week. Fluffy toy sales fell and workshop activity waned as “unresolved issues relating to Brexit negatively impacted consumer confidence”. Those two year old toddlers so fickle in the face of EU uncertainty.

Expert Opinion from UK Economist John Ashcroft – John Ashcroft and Company

Sign up for John’s Saturday Economist newsletter HERE 

Image courtesy of pxhere.com