Share Prices & Company Research


02 October 2018

Prices on the rise …

Global markets have been in buoyant mood, driven by a resurgent Wall Street. The S&P 500 and Dow Jones both climbed to fresh highs on 20th September, with investors cheered by strong US economic growth. The Organisation for Economic Co-operation and Development raised its US 2018 growth forecast from 2.2% to 2.9% and this positive momentum has had a knock-on effect to the rest of the world’s markets, with the FTSE 100 climbing above the 7400 level on 21st September despite a strengthening Pound and faltering Brexit negotiations.

Figures from the Office for National Statistics (ONS) revealed a surprising rise in inflation to 2.7% in August. This was the highest level of inflation for six months, driven by rising prices for recreational goods, transport and clothing. However, wages are still rising ahead of inflation, with the latest figures showing wages, excluding bonuses, growing by 2.9% in the three months to July. Furthermore, rising inflation seems to have had little impact on the spending power of consumers. Figures from the ONS showed retail sales grew by 0.3% between July and August against forecasts of a 0.2% drop. The news caused Sterling to rise above US$1.32.

Despite signs of increasing inflation, it came as little surprise when the Bank of England kept rates on hold at 0.75% earlier this month. The monetary policy committee of the Bank is still attempting a balancing act with its monetary policy, with a number of potential downside risks on the horizon, most notably the prospect of a ‘no-deal’ Brexit, which Governor Mark Carney warned could lead to a property crash with house prices falling by a third. On the other hand, strong consumer spending led to the Bank increasing its third quarter growth forecast from 0.4% to 0.5%.

Meanwhile, consumer prices in the Eurozone cooled slightly in August. The annual inflation rate was confirmed at 2% in the month, slightly below the 2.1% recorded in July, which was a five-and-a-half year high. Prices rose at a softer pace for services, energy and non-energy industrial goods. In September, European Central Bank (ECB) President Mario Draghi said that uncertainty over inflation was receding. The ECB’s target inflation rate is just under 2%, but runaway inflation is unlikely to be a concern as core inflation, which strips out the effects of rising energy costs, remained weak at just 1%. Meanwhile, separate figures showed that unemployment in the region remained steady at 8.2%, its lowest rate since November 2008.

After years of accommodative monetary policy, central banks now find themselves wanting prices to cool down. However, given the recent rise in oil prices this could still take some time. With OPEC refusing to increase supply to counter US sanctions on Iran, the price of Brent crude jumped to a four-year high, above US$81. The effects of a higher oil price are likely to filter through in the coming months. The questions will be, can wages keep up and can central banks respond appropriately?
Joel Dungate, Investment Analyst


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Prices on the rise …
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