US inflation rate hits six-year high
BREAKING: Prices in America are rising at their fastest pace since 2012.
The US consumer prices index rose to 2.8% per annum in May, up from 2.5% in April.
That’s a little higher than expected, and the highest inflation rate since February 2012.
It surely means the Federal Reserve is certain to raise US interest rates on Wednesday.
Prices rose by 0.2% during the month.
Core inflation (which strips out volatile items) rose to 2.2%, another sign that inflationary pressure are building.
European stock markets continue to be underwhelmed by the results of Donald Trump and Kim Jong-un’s historic summit in Singapore.
In London, the FTSE 100 has dropped into the red – down 20 points at 7718. The Frankfurt and Parisian markets are looking becalmed too.
It’s a lacklustre response to what Trump claimed was a “very important event in world history”.
However, it’s not clear that the US president has achieved much, in return for granting Kim such as high-profile meeting.
North Korea’s commitment to “complete denuclearisation” sounds good, but today’s agreement doesn’t include concrete targets. Of course, it will take more than one meeting to reach a truly momentous deal.
Here’s our analysis:
There’s also some surprise that Donald Trump has agreed to suspend “War Games” in the region, on the grounds they are expensive, provocative and inappropriate.
Dr Moritz Pieper, an expert in International Relations at the University of Salford, sees a long road ahead:
“The historic meeting between Trump and Kim can be a first step in a longer-term process that might eventually see a peace treaty for the Korean peninsula and North Korean denuclearisation.
“But both sides have different views of what denuclearisation means. The US line has always been that it wants to see complete, irreversible and verifiable dismantlement of North Korea’s nuclear programme in return for aid and sanctions lifting – or relief.
“But North Korea is unlikely to agree to give up its nuclear weapons. This is seen as North Korea’s security guarantee – the nuclear deterrent is seen as key for regime survival.
The president of ZEW, Achim Wambach, reckons German investors are being spooked by geopolitical perils:
Explaining today’s drop in sentiment, Wambach says:
“The latest escalation in the trade dispute with the United States and fears about policies by the new Italian government that could destabilize the financial system are leaving their mark on the outlook for Germany.
German investor sentiment tumbles
In another alarming development, optimism among German investors has sunk to its lowest in nearly six years.
The ZEW institute’s monthly index of morale has slumped to -16.1, down from the -8.2 recorded in May, and the lowest level since September 2012.
The trade dispute between Europe and the US, and the election of a populist government in Italy, could be a nasty cocktail for German investors.
They’ve also seen exports and factory production fall this year, a sign that Europe’s largest economy may be slowing down.
Economists are concerned…
The broader picture is that UK wages are still below their pre-financial crisis levels in real terms, and struggling to catch up:
Public sector pay packets have lagged behind since 2015, ‘thanks’ to the government’s pay cap on nurses, teachers et al.
They suffered the brunt of the fall in real wages last year, as inflation ravaged pay packets.
UK interest rate rise less likely
The slowdown in UK wage growth last month will concern the Bank of England, which has predicted that earnings will accelerate in 2018.
Weak economic growth in the first quarter of this year prevented the BoE from raising interest rates in May. If wage growth remains weak, it could deter a rate hike this summer too.
Ben Brettell, senior economist at Hargreaves Lansdown, suspects that UK interest rates may remain at 0.5% until 2019.
The Bank views wage growth as a key indicator when considering whether to raise rates. Disappointing figures here, combined with confirmation that the economy grew by just 0.1% in Q1, should put paid to any talk of a summer rate rise.
Policymakers had been thought to be considering raising rates in August, but I still think a rate rise this year looks unlikely. The Bank will almost certainly want confirmation that the Q1 growth figure was just a blip before raising borrowing costs.
Women taking part-time jobs makes up the biggest proportion of job creation in the last year, followed by men taking full-time jobs.
This helped to push the female employment rate to a record high of 71.3% (compared to 80% for men).
Young Women’s Trust chief executive Dr Carole Easton OBE says more help is needed:
“The record rate of women’s employment is welcome, although the Office for National Statistics has pointed out that this is in part due to women retiring later. At the other end of the scale, young women are struggling to find work and make ends meet.
“Young women tell us they want to work and be able to live independently but today’s figures show that nearly half a million are still out of work and full-time education – 11,000 more than this time last year.
Esther McVey, the Secretary of State for Work and Pensions, says the steady job labour market is a “success story”:
“The employment rate has never been higher – with over 3.3 million people moving into work since 2010.
“It’s a Great British success story with businesses from Exeter to Edinburgh creating jobs – helping, on average 1,000 people find a job each and every day since 2010.
“And with the increase in the personal tax allowance, this Government has ensured that people are keeping more of their money before they begin paying tax – meaning more take-home pay, that’s more money in your pocket for you and your family.
At just 2.8%, UK pay growth is well below the 4.5% enjoyed in the run-up to the financial crisis.
Conor D’Arcy, senior policy analyst at the Resolution Foundation, says earnings growth remains disappointing:
“The UK jobs market has continued to impress in 2018, with employment remaining at a record high and female unemployment falling to its lowest ever level.
“But we’re yet to see the good news on jobs feed into wage pressure, with nominal pay growth still below 3%.
“While the easing of inflationary pressures is helping pay packets to stretch that little bit further, there is still no sign of a long overdue pay rebound in Britain.”
Industrial unrest hit a record low in April, with fewer walkouts than ever before.
The ONS reports that:
- there were 3,000 working days lost from five stoppages in April 2018, the lowest number of stoppages since monthly records began in January 1931
- 1,000 people took strike action, one of the lowest figures on record
This highlights how union power has waned in Britain in recent years — perhaps one reason that wage growth is now so mediocre.
Suren Thiru, head of economics at the British Chambers of Commerce (BCC), is worried that UK wage growth is slowing:
“While pay is still outpacing price growth, the slowdown in earnings growth is a concern. Delivering sustained rises in real pay growth is likely to prove an uphill struggle amid weak productivity and a sluggish economy.
As a consequence, household finances are likely to remain stretched, particularly given weak household savings and high debt levels. The slowdown in earnings growth, together with the recent weakness in a raft of other economic indicators, undermines the case for tightening monetary policy.
World First: Unemployment may rise soon
Jeremy Thomson-Cook, chief economist at WorldFirst, fears that the UK labour market may have peaked.
“The juxtaposition of today’s increase in the employment rate to a record 75.6% and yesterday’s news of lay-offs at both Poundworld and Jaguar Land Rover will be lost on nobody and we think that today’s jobs report could soon be revealed as a high water mark for job creation.”
“The recent claimant count trend has been increasing – it sits at 3½ year high currently – and employment readings within the PMI sentiment surveys have been deteriorating so an increase in joblessness soon would not come as surprise. This could also contribute to a slowing of wage gains, something that we have seen already this month.”
TUC: wage growth is running out of steam
This wage slowdown means that real basic pay growth in the UK (basic earnings minus inflation) remains just 0.4%.
And total real pay growth is zero — with inflation eating up pay and bonuses.
TUC General Secretary Frances O’Grady has warned that wage growth is “stuck in the slow lane”.
At this rate pay packets won’t recover to their pre-recession levels for years.
“We need to speed things up. Extending collective bargaining would boost living standards and help workers get a fairer share of the wealth they create.
The number of unemployed people in the UK dropped by 38,000 in the last quarter, to 1.42 million.
Today’s jobs data is weaker than expected, says Reuters’ Andy Bruce:
Unemployment: the key charts
Britain’s employment rate has now been at a record high of 75.6% for two months running – a record dating back to at least 1971.
At 4.2%, the unemployment rate hasn’t been lower since March-May 1975:
But this apparent strength is not reaching workers’ pockets. Regular pay growth is now dropping, having hit its highest level since 2015 last month.
Wage growth slows, but UK keeps creating jobs
Newsflash: Wage growth in the UK has slowed, even though the economy continues to create jobs.
Basic pay growth slowed to 2.8% per year in the three months to April, the latest labour market report shows. That’s down from 2.9% a month ago, suggesting that wage growth is faltering.
Total pay growth (including bonuses) also slowed, to 2.5% from 2.6%.
The unemployment rate, though, remains at just 4.2% – its lowest level in 43 years. And the economy continued to create jobs — 146,000 new workers were taken on in the last quarter, down from 197,000 in the January-March quarter.
The ONS says:
- There were 32.39 million people in work, 146,000 more than for November 2017 to January 2018 and 440,000 more than for a year earlier.
- The employment rate (the proportion of people aged from 16 to 64 years who were in work) was 75.6%, higher than for a year earlier (74.8%) and the joint highest since comparable records began in 1971.
- There were 1.42 million unemployed people (people not in work but seeking and available to work), 38,000 fewer than for November 2017 to January 2018 and 115,000 fewer than for a year earlier.
More to follow!
Economist Shaun Richards says we should watch out for total wage growth in today’s jobs report (that’s pay including bonuses).
It dropped to 2.6% last month, down from 2.8%.
Trump’s economic advisor Kudlow hospitalised after heart attack
Overnight, Larry Kudlow – the director of Donald Trump’s National Economic Council – was hospitalised after suffering a heart attack.
Trump broke the news on Twitter, shortly before his summit with Kim.
Kudlow, a former TV personality and Wall Street economist, only joined the White House in March. He’s an important advisor to Trump, and a supporter of free trade, and it’s not clear who might cover his duties while he recuperates.
Kudlow hit the headlines on Sunday after accusing Canadian PM Justin Trudeau of “essentially double-crossing President Trump”.
Paul Donovan of UBS thinks investors should focus on the crisis at the G7, rather than Trumps’s meeting with Kim.
The US president seems to have a better relationship with the North Korean leader than with the Canadian leader. Markets don’t care too much about North Korea. Markets do care about US relations with Canada.
Sue Trinh of RBC says investors shouldn’t get too excited by Kim’s pledge to work towards ‘complete denuclearisation” of the Korean peninsula.
Both sides stand far, far apart on what denuclearisation means. To the US, it means NK must deliver complete, verifiable and irreversible denuclearisation. To Kim, it means NK suspends nuclear and missile tests in exchange for major economic concessions and the US stepping back as torchbearer for the Asian region (basically dismantling its alliance with South Korea and ultimately the region as a whole). Kim has never announced the intention of abandoning his existing nuclear arsenal, which he calls a “treasured sword”.
Per previous peace deals, the main issue will be the pace of implementation, which includes agreement on a verification protocol. South Korean President Moon suggested it could be the start of a process lasting up to two years or longer.
So let’s get back to what really matters for markets for the time being – next up, US CPI, voting on the EU Withdrawal Bill and the FOMC and ECB meetings.
European markets open higher after Trump-Kim meeting
European stock markets have opened higher as traders digest the historic US-North Korea summit in Singapore.
After holding hours of talks, Donald Trump and Kim Jong-un have sat down before the world’s media and signed a ‘comprehensive’ agreement, pledging to work towards peace on the Korean peninsula.
Photos of the document also show that North Korea has committed to “work towards” complete denuclearisation.
That’s a welcome aspiration, but not a full-blooded commitment it will actually happen. Kim hasn’t agreed to any explicit missile reductions, for example.
But still, the Europe-wide Stoxx 600 index has gained 0.4% in early trading, on relief that the Singapore event has gone better than the G7 summit.
Trump declared that the two leaders had enjoyed a “really fantastic meeting”, while Kim spoke about “a big prelude to peace”.
Britain’s FTSE 100 is up a modest 6 points.
We’re tracking all the developments here:
The agenda: UK unemployment; US inflation
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we learn how Britain’s labour market is faring, as the warning lights flash on the UK economy.
Overnight, recruitment firm ManpowerGroup has reported that company bosses are at their most pessimistic since 2012 — due to worries over Brexit and the high street slowdown.
My colleague Richard Partington explains:
Watched by the Bank of England and the government for early warnings of hiring spurts or downturns, the quarterly poll of about 2,000 major employers from nine different industry sectors across the UK found a net balance of only 4% planning to hire more staff rather than cutting back.
The weakest outlook from the survey was reserved for the banking and finance industry, which recorded the worst outlook since the depths of the financial crisis almost a decade ago, suggesting job cuts may be on the way over the summer.
With manufacturing output hitting a six-year low yesterday, and construction output also disappointing, the economy appears to be at its weakest point since the eurozone crisis was raging six years ago.
So, today’s unemployment figures will be scrutinised for signs of weakness.
Economists are expecting the jobless rate to remain at 4.2% in April, a 43-year low, with basic pay rises unchanged at 2.9%.
But, the number of jobs created over the last quarter could drop to around 110,000, from 197,000 in the three months to March. That could signal that the labour market is cooling.
Adam Cole of Royal Bank of Canada explains:
Even though there have been a number of large surprises to the upside in the employment data over the last six months, it will be very difficult for gains in employment to match last month’s very strong +197k 3/3m.
For the unemployment rate, we expect it to remain at 4.2% for a third consecutive month. As ever, average wages will be the more closely watched measure, but on this occasion we don’t expect major changes and look for the excluding-bonus measure to remain 2.9% 3m/yr.
Also coming up today
It’s a big day for Brexit, as parliament votes on an amendment to give MPs give parliament a meaningful vote on the final deal.
This would put the House of Commons in charge if MPs were to reject the government’s final divorce deal was rejected by MPs into the hands of the Commons. It aims to avoid MPs facing a choice between the government’s deal or no deal, but Brexiters fear it could lead to a second referendum.
Sterling could be volatile if Theresa May fails to block the amendment.
We also get the latest American inflation figures. The annual US CPI is expected to rise to 2.7%, from 2.5% in May, as the cost of living accelerates.
The US Federal Reserve is already expected to raise interest rates tomorrow, following a two-day meeting starting today.
- 9.30am BST: UK unemployment statistics
- 10am BST: ZEW survey of eurozone economic sentiment in June
- 1.30pm BST: US CPI inflation for May
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