As we head into the summer if you've been a reader of this blog or a financial publications like the FT you will be unsurprised by the recent newsflow in the main stream that the UK housing market is on fire and inflation has started to tick up.

The UK housing market has become utterly crazy and anecdotally I have heard stories that some customers have been making offers 15-20% over the asking price [which has likely been set by an estate agent with an ambition to already maximise selling price for the customer and their own commissions] but these offers come via viewings online or a quick 5 minute house tour via a video link on an iPhone.

The world has changed.

Yet this housing market was utterly predictable given the huge stimulus of stamp duty holiday, Help to Buy, 95% LTV government guarantee scheme all set to a low interest rate environment.  

We have been talking about inflation for a while on this blog and it has been a big focus for central bankers and market participants certainly since the long end of the bond curves started to tick up towards the end of 2020, as economies started to see life beyond the challenges of the corona virus pandemic with vaccination roll outs.

Measuring inflation is not as simple as one might think.

Measuring changes in average price levels requires the use of a device called an index. It is impossible to keep an accurate record of every price change for every good and service in the economy at all times. In 1914, the UK Government began to monitor food prices to help protect workers during the First World War. In 1916, price checks on clothing, fuel and a few other items were added to generate a simple cost of living index.

Today, the UK uses a number of indices to track price changes, including the Consumer Price Index (CPI), which was introduced in 2003, and the much older Retail Price Index (RPI) which was introduced in 1947.  Using an index allows a general picture to develop to show the average price change for a sample of goods and services, measured at monthly intervals. In 2013 two new indices were introduced – the CPIH and the RPIJ. In November 2016 the CPIH replaced the CPI as the ‘official’ measure of inflation in the UK.

The CPI is based on the European Harmonised Index of Consumer Prices (HICP) and its introduction in the UK allowed for more accurate inflation comparisons between the UK and Europe.

The chart shows the latest CPIH and whilst the absolute number in the UK is relatively low the rate of change is quite remarkable

Then just today UK economic data shows UK average weekly earnings in +5.6% & May unemployment claimant count -92600 month/month.

Yet all of this is set against other news that sees the UK push back its reopening date by perhaps 4 weeks.  

It is this kind of uncertainty that allows central bankers to suggest that current inflation is merely transitory and keep the stimulus train rolling.  Indeed many market participants agree that we are unlikely to see a rate rise before 2023 and perhaps the end of the Fed meeting today will likely give more colour on the thinking of the worlds most powerful central bank.

Elsewhere the recent G7 & NATO meetings gave its usual blah and its perhaps its reassuring that Russian and China are still wearing black hats... well unless we want to buy stuff or central Europe wants to heat its homes in winter [see Nord Stream 2 for further details].  The complaints around China and Russia are the usual state intervention....hang on what is this on the tape?  Boeing / Airbus subsidies....