UK inflation retreat and oil price dip provide relief
- The UK’s headline rate of inflation has nudged down, helped by an easing of food and accommodation prices.
- CPI number came in at 6.7% in August, down from 6.8% in July while core inflation also dipped back from 6.9% in July to 6.2% in August.
- Brent crude slips to $93 dollars a barrel amid concerns about global growth prospects.
- Federal Reserve decision on interest rates later will set the tone for trading.
- Disney shares slip as House of Mouse reveals plan to double investment in theme parks.
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “It’s a painful and slow path, but inflation is continuing to head down the hill which will ease headaches at the Bank of England. Oil prices did start to march upwards in August, and hit fresh ten month highs this week, but an easing of food and hotel bills have offset the impact of higher prices at the pumps. The ramping up of crude prices over recent weeks will filter through, but there will be relief that oil prices have also snuck away from the week’s highs, with Brent Crude falling back to $93 a barrel after topping $95. This fall was partly driven by expectations that the still stubborn nature of inflation will mean central bank policymakers will vote to keep interest rates higher for longer, causing fresh pain for companies and consumers, and push down demand in economies.
The UK’s core inflation rate, stripping out more volatile food and fuel prices, has been obstinately high but it too has made a larger than expected step in the right direction falling from 6.9% to 6.2%. Even so, with inflation still more than three times above the bank’s target another rate hike of 0.25% may still be delivered tomorrow. There may be more dissent around the table though, with the full effect of previous rate hikes yet to be felt. With the contracting in July and with employers becoming a lot more cautious about hiring staff, if there is a hike tomorrow it is likely to be the last in the cycle.
Before Bank of England policymakers get round the table, Fed officials will make their highly anticipated decision on interest rates today. A pause is still widely expected but it’s going to be the accompanying commentary which will set the tone, with investors on tenterhooks about what the Fed’s next steps will be and when cuts will be on the agenda. As pandemic savings dwindle and student debt payments are set to resume, US consumers are set to have less cash to splash. The full effect of previous rate hikes are yet to filter through and the strike by auto workers in the United States, may also be a drag on growth, which raises the prospect of earlier cuts to interest rates compared to in Europe and the UK.
In this environment companies are going to have to offer a lot more bang for consumers’ bucks to persuade them to open their wallets. Disney had come under intense criticism for layering up prices in its theme parks, and squeezing out money from customers, a tactic high profile investor Nelson Peltz called unsustainable. Now the House of Mouse is planning to double its investment into its kingdoms and cruise trips. While investors appear to have baulked at the plan to up spending to $60 billion over the next ten years, leveraging the potential of new characters and franchises seems a more sensible plan for growth rather than continually raising prices for little extra in return. It’s also clear that the user experience will need enhancing to ensure the Magic Kingdoms keep satisfying fan’s desires. Although there are signs that consumers are more willing to forgo big ticket items, for socialising and holidays, competition for tourist dollars is intense and how this investment is deployed will be closely scrutinised.”