Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040615g.jpg" width="353">
Consumer prices in the UK in May were 1.55% above a year ago. the largest year-to-year increase since March, 2003. The largest impact came from transportation costs for fuels and lubricants, which were 8.23% higher than in May,2003.
While inflation as measured by the consumer price index continues to be below its 2% inflation target, the Bank of England has raised the bank rate four times since November, 2003 from 3.50% to 4.50% currently. (The first chart shows the year over year change in the consumer price index and the bank rate.)
A major factor in the Bank&#39;s interest rate policy has been the rise in house prices. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040615h.jpg" width="353"> The rise in house prices moderated toward the end of last year in response to interest rate increases, but began to accelerate this year. In May the Halifax index of housing prices was almost 22% above a year ago.
It is not so much the impact of rising house prices on the consumer price index, which may be small, that is of concern to the monetary authorities as it is the consequences of ignoring a speculative bubble. That the rise in house prices has the characteristics of a bubble is evident when one compares the rise in house prices to the rise in workers&#39; earnings. (The second chart shows the ratio of the Halifax Index of housing prices to the index of average earnings. This chart ends in March 2004 as data on earnings are available only through March)

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<th scope="col" class="firstcol">UK</th>
<th scope="col">May 04</th>
<th scope="col">Apr 04</th>
<th scope="col">May&nbsp; 03</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y&nbsp; %</th>
<th scope="col">2003 % </th>
<th scope="col">2002 % </th>
<th scope="col">2001 % </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">CPI (1996=100)</td>
<td>111.4</td>
<td>111.0</td>
<td>109.7</td>
<td>0.36</td>
<td>1.55</td>
<td>1.36</td>
<td>1.27</td>
<td>1.22</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Fuels &amp; lubricants</td>
<td>144.7</td>
<td>138.01</td>
<td>133.7</td>
<td>4.78</td>
<td>8.23</td>
<td>3.60</td>
<td>-3.16</td>
<td>-5.11</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Rents</td>
<td>124.2</td>
<td>124.1</td>
<td>121.7</td>
<td>0.08</td>
<td>2.05</td>
<td>1.47</td>
<td>2.67</td>
<td>3.33</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td class="firstcol">Halifax Housing Prices (1983=100)</td>
<td>514.9</td>
<td>499.8</td>
<td>422.8</td>
<td>3.02</td>
<td>21.78</td>
<td>&nbsp;18.96</td>
<td>20.93</td>
<td>8.10</td>
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<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td class="firstcol">&nbsp;</td>
<td>Jun04</td>
<td>May04</td>
<td>Apr04</td>
<td>Mar04</td>
<td>Feb04</td>
<td>Jan 04</td>
<td>Dec 03</td>
<td>Nov 03</td>
</tr>
<tr>
<td class="firstcol">Bank Rate</td>
<td>4.50</td>
<td>4.25</td>
<td>4.25</td>
<td>4.00</td>
<td>4.00</td>
<td>3.75</td>
<td>3.75</td>
<td>3.75</td>
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Consumer prices in the UK in May were 1.55% above a year ago. the largest year-to-year increase since March, 2003. The largest impact came from transportation costs for fuels and lubricants, which were 8.23% higher than in May,2003. [...]

Another Hike in the Offering for the UK Bank Rate?

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The NFIB Small Business Optimism Index slipped 0.2% (+7.8%) to 98.6 in June after rising an unrevised 3.1% in May and falling 1.6% in April, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. Six of the ten index components increased last month. The NFIB Small Business Uncertainty Index fell 5.3% (+8.5% y/y) to 89 after rising 2.2% in May. It was at the lowest level in six months.

The outlook for business conditions dropped in the latest survey. The net balance of respondents expecting the economy to improve stood at 22% last month versus 25% in May. A lessened 7% expected higher real sales in six months, compared to 10% in May. An increased 11% of respondents indicated that now was a good time to expand the business. The figure remained up from 4% last September.

Plans to make capital outlays eased to 21% of firms after rising to 22% in May. Plans to add to inventories were unchanged at -1% of survey respondents, and has been negative or zero all year. The index of expected credit conditions held steady with May at -4%. It remained up from a low of -11 in November 2023. On the labor front, the percent planning to increase employment edged up to 13% from 12% in May. The figure has trended near that level since March, but stands substantially below its high of 32% in August 2021. An increased 50% of businesses reported few or no qualified workers to fill job openings in June, up from a low of 46% last October. These readings remained below a high of 56% in August of last year.

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The net percent of firms reporting higher earnings rose to -22% last month after falling to -26% in May. The figure was increased from the August low of -37%. 

On the pricing front, the net percent raising their average selling prices rose to 29% last month from 25% in May. It had grown to 32% in February. The percentage planning to raise prices increased to 32% in June, up from a 24% low in July of 2024. Worker compensation rebounded as a net 33% of respondents lifted compensation during the last three months versus 26% in the last survey. Compensation gains peaked at 50% of firms in January 2022. A lessened net 19% of firms are making plans to raise worker compensation in the next three months, below November’s high of 28%.

Taxes were reported by an increased 19% of member firms as the single most important issue facing small businesses. These contrasted to a diminished 11% citing inflation as the most important problem. Other major concerns were the cost of labor reported by 10% of firms and government requirements, steady at 9%.

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

- Economic & sales expectations slip.
- Employment plans & job openings improve.
- Percent lifting prices and price expectations rise.

U.S. NFIB Small Business Optimism Index Dips in June

Tian Yong Woon

This week, we look at the latest US trade developments and their implications for Asia, as President Trump unveiled new tariff rates on 14 countries (chart 1). Though some rates were lower and implementation delayed to August 1, the move signals the US tariff pause is ending and deepens investor uncertainty in Asia. Market sentiment has weakened, reflecting both renewed policy risks and stalled trade negotiations in the region (chart 2). 

Vietnam stands out as a rare exception, having secured a deal with the US that reduced its tariff rate from 46% to 20%. However, the agreement includes a 40% tariff on “transshipments,” aimed at curbing indirect exports from third countries, such as China. In return, the US has gained tariff-free access to Vietnamese markets—an offsetting benefit for American firms. Nonetheless, the 20% rate remains high and could raise costs for US consumers if passed through supply chains (chart 3). Japan, by contrast, faces a more delicate balancing act. A 25% tariff was confirmed, while pressure persists over access for US agricultural exports—particularly rice (chart 4). Domestic sensitivities remain elevated amid a rice shortage and looming upper house elections, limiting Tokyo’s room to manoeuvre. 

Regional central banks are responding cautiously. The Reserve Bank of Australia held rates steady, defying expectations of a cut and citing a need for more information (chart 5). Rate decisions from South Korea, New Zealand, and Malaysia are due this week, with South Korea’s central bank seen likely to hold, amid rising home prices and mortgage growth (chart 6).

**Latest US tariff developments**
As previously signalled, US President Trump on Monday unveiled a new round of tariff rates targeting 14 countries, confirming initial fears that the US would move forward with reciprocal tariffs following its 90-day pause. While investor concerns—renewed late last week—have begun to materialize, there are two modest sources of relief. First, as shown in chart 1, many of the newly announced US tariff rates are actually lower than those initially unveiled on “Liberation Day,” April 2. Second, President Trump has delayed the effective date of the tariffs to August 1, offering a temporary window for countries that have not yet done so to negotiate trade deals with the US. However, while the extension allows more time for dialogue, it does not constitute a formal delay in implementation—at least for now. That said, progress in trade negotiations with the US remains limited across most Asian economies. In some cases, such as Japan, talks may have even come to an impasse—this will be explored further in subsequent sections. Vietnam, however, stands out as an exception, having secured a trade agreement with the US late last week; this development will also be discussed in more detail later on.

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Understandably, the earlier sense of relief—when tariffs appeared to have been delayed—has faded, giving way to renewed uncertainty. As this shift in sentiment takes hold, equity performance across advanced Asia has weakened slightly in recent days, as shown in chart 2. This likely reflects not only rising investor caution but also the lack of substantial progress in trade talks with the US, which contributed to the unveiling of tariff rates on Monday—unlike the more favourable treatment seen in Vietnam’s case. Looking ahead, investors focused on Asia will turn their attention to several country-specific trade discussions with the US for further cues. Growth and inflation outlooks are also likely to be revised, as not only first-round but also second- and subsequent-round effects of the tariffs are increasingly factored in. Another noteworthy development is US Treasury Secretary Bessent’s recent statement that around 100 economies and territories will now face a baseline tariff of 10%. If accurate—and if the 10% rate holds as the minimum—it suggests that many of the roughly 20 or more economies originally assigned that baseline rate have now been excluded. In effect, their relative trade position has worsened. In the Asia-Pacific region, key economies to watch in this context include Australia, New Zealand, and Singapore. 

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**Vietnam**
While trade deals with the US have been few and far between since the beginning of the tariff pause, Vietnam has stood out following the announcement of a new trade agreement with the US late last week. Originally facing a reciprocal tariff rate of 46%, Vietnam has reached a deal to reduce that rate to 20%. However, the agreement also includes a 40% tariff on so-called “transshipments”—a measure aimed at addressing US concerns that goods may be routed through Vietnam from other economies, possibly China, to circumvent higher tariffs or trade restrictions. In return, the US has secured tariff-free access to Vietnamese markets. While the 20% rate is a significant improvement over the initially proposed 46%, it remains relatively high—especially compared to the 10% reprieve level. This will likely translate into higher costs for American consumers unless the increase is absorbed by producers or suppliers. On the positive side, tariff-free access to Vietnam offers some offset, particularly for US input goods sent to Vietnam for further processing, which would avoid additional tariffs on that leg of trade. That said, there is still uncertainty around how the “transshipment” clause will be defined and enforced in practice. Given Vietnam’s role as a major supplier of electronics—including smartphones—to the US (chart 3), the increase from the 10% pause rate to 20% is significant. If the added costs are passed through the supply chain, it could lead to a noticeable impact on US consumer prices.

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**Japan**
Turning to Japan, the country is delicately balancing two competing pressures: minimising the economic fallout of renewed US tariffs while resisting trade concessions that could be seen as damaging to its domestic interests. A key sticking point is Washington’s push for greater access to Japan’s agricultural market—particularly for US rice. President Trump has criticized Japan as “spoiled” for resisting such demands and previously threatened tariffs of 30–35%. On Monday, however, a 25% tariff on Japanese goods was announced—slightly above the 24% rate first unveiled on “Liberation Day,” April 2. Meeting US demands would carry significant political risks for the Japanese government. Any perceived concession on rice would likely spark backlash from Japanese farmers, a core constituency of Prime Minister Ishiba’s political base. The issue is especially sensitive with upper house elections on the horizon. Complicating matters further, Japan is currently facing a domestic rice shortage that has been driving up prices. Given rice’s central role in the Japanese diet, the shortage is a growing cost-of-living concern. In response, Japan has already ramped up rice imports, as shown in chart 4, including by moving forward a tariff-free tender—originally scheduled for September—for 30,000 tons from the US, Australia, and Thailand. However, compared to Japan’s overall consumption needs, this added supply is little more than a drop in the bucket.

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**Central bank decisions this week**
This week’s renewed US trade uncertainty threatens to complicate a busy calendar of central bank decisions across the region. First among the major announcements was the Reserve Bank of Australia (RBA), which defied consensus expectations by leaving its policy rate unchanged, rather than delivering the widely anticipated 25 bps cut. While the RBA acknowledged significantly cooled inflation—as shown in chart 5—it also pointed to a still-tight labour market and market sentiment suggesting that the most extreme US trade scenarios are likely to be avoided. Citing the need for more information before considering its next steps, the RBA opted to maintain its policy rate at 3.85% following its July meeting. Other key central banks set to announce decisions this week include those of New Zealand, South Korea, and Malaysia—the latter two of which are facing 25% US tariffs starting August 1, absent a trade agreement, as announced by President Trump on Monday.

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Lastly, turning to South Korea, the central bank (BoK) has already lowered rates four times since beginning its easing cycle last October and maintained a dovish tone at its most recent meeting in response to weakening growth momentum. However, the BoK is widely expected to hold rates steady this week. It is aiming to strike a balance between supporting growth—particularly with the potential reinstatement of US tariffs looming—and avoiding overheating in segments of the domestic economy. In particular, the BoK remains concerned about the property market, where housing prices have resumed their upward trend, and the household loan sector—especially mortgage lending—where loan growth has once again accelerated, as shown in chart 6.

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Asia

Economic Letter from Asia: The Final Countdown?

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) jumped 2.3% (0.2% y/y) during the four weeks ended July 4, 2025. The improvement followed declines since early spring.

Prices in the Metals group surged 4.0% (-2.3% y/y) over the most recent four weeks. Price strength was broad-based. Tin prices jumped 7.9% (2.2% y/y) while aluminum costs surged 5.6% (4.2% y/y). Copper scrap prices rose 3.8% (5.0% y/y) in four weeks as lead prices surged 3.4% in four weeks (-7.4% y/y). The cost zinc rose 3.0% (-6.0% y/y) and steel scrap rose 1.4% (-11.4% y/) in four weeks.

Crude Oil & Benzene group prices moved 3.1% higher (-15.7% y/y) in the latest four week period. The cost of West Texas Intermediate crude oil rose 5.2% higher to $65.86 per barrel and remained 20.6% lower y/y. It fell to a low of $58.50 per barrel in the second week of May. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, strengthened 6.0% (-35.3% y/y). Excluding crude oil, the industrial commodity price index rose 2.1% (1.6% y/y) during the last four weeks.

Miscellaneous group prices increased 1.5% (9.8% y/y) in the latest period. The price of tallow (used in the soap industry) rose 5.9% (15.7% y/y) in four weeks. Framing lumber prices gained 4.3% (38.3% y/y) while natural rubber prices improved 0.3% (12.5% y/y) in four weeks.


Prices in the Textile group edged 0.8% higher (1.7% y/y) during the last four weeks. Cotton prices rose 4.4% and also 4.4% y/y. Burlap costs rose 1.3% in four weeks and 10.1% y/y.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Prices increase broadly after earlier declines.
- Metals prices lead upturn.
- Textile price rise but rubber prices are little changed.

FIBER: Industrial Commodity Prices Surge in Latest Four Weeks

Robert Brusca

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German industrial production rose by a sharp 1.2% in May but only after a 1.6% plunge in April which followed a 2.3% surge in March. This has been an unusually turbulent period for industrial production. However, on balance, German IP shows acceleration (from 12-months to 6-months to 3-months) for headline IP, for consumer goods output, for capital goods output, as well as for manufacturing overall and for real manufacturing orders.

**Data trends**
This collected pattern of accelerating trends is exceptionally good news and tends to push the volatility in output into the background. Typically, volatility tends to reduce the meaning of any trend since depending on where you are in a volatility, up-vs-down pattern, the trend will be not just exaggerated but even switched in direction. However, with not just growth but acceleration in play and with accelerating trends in play for so many categories- including real orders- the uptrend appears to be solidly established even in the face of volatility. And the chart seems to confirm that (drawn on year-over-year sector trends).

**Knowledge beyond data**
In addition, we know that there are other conditions stirring in Europe that give us cause to think that output solidifying is a real event not just the luck of the draw on one month’s volatility. The shift is to get NATO countries to pay for more of their own defense and to pay more period. At the recent NATO meeting, member countries pledged to spend 5% of GDP on defense that should help to light a fire of demand across Europe. At the same time, the good news is that inflation headlines in the EMU and across major member countries are mostly on target while core inflation remains stubborn at an elevated pace near 2.5%, mostly across the EMU.

**Quarter-to-date (QTD)**
The volatility leaves German IP growing at less than a 1% annual rate in Q2 over the Q1 average (quarter-to-date, or QTD)– a far less portent reading than the three-month rate of 7.7% (saar). But manufacturing, unimpeded by the weakness in construction, shows a QTD annual rate rise of 2.9%. Real manufacturing orders are advancing at a 16.4% annual rate in the quarter while real sales are declining.

Surveys show improvements over three months compared to six-months, but all of them also show some slippage over six months compared to 12-months. Yet, all of the three-month averages are above the 12-month averages. Survey data generally show momentum is turning higher, but not markedly.

**Queue standings – longer term comparisons**
The queue standing data compare current growth rates (Y/Y) or (in the case of surveys) levels to past performance. Total IP, consumer goods, capital goods, manufacturing output, and real orders all have May readings above their historic median growth rates/or levels (rankings over 50%). But construction and intermediate goods sectors lag badly. Real sales are weak, and the surveys all show weak signal compared to all levels since January 2000. This tells us that the momentum in German industry (12-month growth) is solid and strong, but that the level of activity is weak – and quite weak- compared to past performance. This is also clear from the far-right column that measures current output relative to output in January 2020, just before Covid. These are aggregate changes. Germany’s output is still 1.7% lower in May 2025 than it was in January 2020 – nearly five- and one-half years down the road. This has been a very weak period for Germany. Only capital goods output among sectors is higher, rising by 4.9% over a period of five-plus years and making most of that in the last 12 months. The surveys show conditions have weakened on balance over this period as well.

**Some other Europe**
Portugal and Norway give us a look at two other European economies. Both show growth in May as well as QTD. Norway is supercharged with the strong oil market in play as a tailwind. Its queue standing for growth has a 99-percentile reading. Both Portugal and Norway are stronger relative to January 2020; Portugal by 11.8% and Norway by 8.3%.

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**Summing up**
The production situation in the EMU and in Germany appears to be solidifying. However, supply needs demand. Retail sales in May fell in the EMU for the first time since December. German retail sales volume has been up by 2% or more by months in its year-over-year growth rates since May 2024… until this month. The 1.6% rise in real German retail sales (ex-autos) in May 2025 is the weakest rise since German retail sales fell year-over-year in May 2024. Six of ten early reporting countries in Europe show real retail sales drops in May as well. So, just as one series begins to look solid another begins to raise question marks. It has been like that for a while in Europe.

Another Hike in the Offering for the UK Bank Rate?

Summary

Louise Curley

More Economy in Brief

U.S. NFIB Small Business Optimism Index Dips in June

Economic Letter from Asia: The Final Countdown?

FIBER: Industrial Commodity Prices Surge in Latest Four Weeks

German IP Is Making Progress Across Most Sectors

UK	May 04	Apr 04	May 03	M/M %	Y/Y %	2003 %	2002 %	2001 %
CPI (1996=100)	111.4	111.0	109.7	0.36	1.55	1.36	1.27	1.22
Fuels & lubricants	144.7	138.01	133.7	4.78	8.23	3.60	-3.16	-5.11
Rents	124.2	124.1	121.7	0.08	2.05	1.47	2.67	3.33

Halifax Housing Prices (1983=100)	514.9	499.8	422.8	3.02	21.78	18.96	20.93	8.10

	Jun04	May04	Apr04	Mar04	Feb04	Jan 04	Dec 03	Nov 03
Bank Rate	4.50	4.25	4.25	4.00	4.00	3.75	3.75	3.75