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Economy in Brief

UK PPI Surges – Not What The Doctor Ordered
by Robert Brusca April 9, 2010

UK MFG inflation trends are still running hot with the release of the PPI for March. Commodity prices are still rising, adding to the pressure with Brent prices up by 7% in the March and other commodity prices rising as well. Coupled with weakness in sterling, inflation has a real foothold in the UK. The BOE has an inflation ceiling but that applies to its Consumer price measure, not the PPI. Still, with this kind of pressure on producer prices it is hard to conclude that the CPI will be out of the woods anytime soon.

In terms trends in the PPI, The various sequential rates of growth all are elevating but the three month rate is below the six month rate for both the core and the headline rates indicating that it is not a pure acceleration for inflation But the Core rate is still slightly above its Yr/Yr pace and that is not a good sign. Inflation trends in the UK could be worse but they could be a lot better too. There is not much in this report that is reassuring if you are at the Bank of England trying to decide on policy.

On top of these poor trends there is also pressure from input prices that were up exceptionally strongly in March. While the UK has posted some better growth numbers recently the BOE is still helping the markets with securities purchases. The last thing it needs is for inflation to become more unstable. Inflation is already pushing the limits of BOE tolerance for the CPI. Any further pressure would really put the BOE between a rock and hard place.

UK PPI MFG net output prices
  %M/M %SAAR
  Mar-10 Feb-10 Jan-10 3-mo 6-mo 12-mo 12-moY-Ago
MFG 0.6% 0.4% 0.2% 4.9% 6.7% 5.0% 2.0%
 Core 0.6% 0.3% 0.2% 4.3% 5.1% 3.6% 3.2%
Core: ex food beverages, tobacco & Petroleum
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