Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
UK data shows rising inflation and falling retail sales as the Delta variant grips consumer confidence
UK consumer prices rose by 3.2% in the 12 months to August from 2% a month earlier. This is the highest level since 2012 and the highest jump in a single month on record. Despite the alarming jump in prices, the move was largely expected by economists and is mostly due to the effect of discounts in the hospitality sector this time last year. Nevertheless, the 3.2% headline rate is above the 2% Bank of England target and will bring into question the potential for central bank rate hikes sooner than previously expected.
UK retail sales fell by 0.9% in the month of August, after the 2.9% contraction in July, meaning that retail sales is at exactly the same level as it was this time last year. This was the third decline in four months and likely reflects some Covid-19 caution surrounding the Delta variant.
Eurozone inflation rises to 3% as energy prices surge
The headline consumer prices index rose by 3% in the 12 months to August, compared to 2.2% in July. The major contributors to the rise in inflation were non-energy industrial goods and the rising price of electricity, which has risen 2.1% in the last month alone. The core index, which strips out the effects of volatile components such as energy and food, rose from 0.7% to 1.6%.
The European Central Bank has committed itself to look through the short-term rise in prices and maintain its loose monetary policy stance.
The big news of the week came in credit markets as China Evergrande, the world’s most indebted property developer with $300bn worth of debt, announced that property sales have been falling in recent months, exacerbating an already poor cash flow situation. As a result, the Evergrande share price has contracted over 80% in the year so far and the trading of their bonds has been repeatedly halted in recent weeks with nervousness passing through into domestic Chinese equity markets. A worst case scenario debt default of this size would have serious implications for investors in international markets through a contagion effect but such a pass through is unlikely given the systemic importance of a property developer the size of China Evergrande to the Chinese economy.
Look out for next week’s update, where we’ll be focusing on the PMI survey data and European consumer confidence.
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