Increase to UK inflation, while China’s consistent growth raises questions

October 28, 2016

UK inflation data (CPI) released last week showed that prices increased by 1.0%, higher than economists’ expectations of 0.9%. Surprisingly, the ONS reported that the rise was not explicitly linked to the decline in sterling since the referendum vote. The main contributors were fuel and clothing prices which were coming from a low base last year. Importantly, many factors such as food and fuel are now not having the same significant negative impact on the headline figure as they have been over the last several years. Forward indicators such as input prices which saw a monthly increase of 7.2%, mean that there will be continued upward pressure on inflation going forward.


China reported its third consecutive quarter of 6.7% annual growth. Some have found it suspicious that the official figures reflect such stable growth over the year so far, which also happens to be in the middle of the government’s 6.5-7% annual growth target. Most agree that the data is subject to significant smoothing by the statisticians, spreading more volatile data over several periods. Some analysts argue that the data is a significant overstatement of the real situation in China. With such a large economy it would be difficult to confirm either way; however, the authorities have at least succeeded in retaining investor and consumer confidence for the time being.


Saudi Arabia’s first dollar-denominated bond showed that there is still a significant appetite for emerging market debt, even though the kingdom is running a 13% deficit (down from 16% last year). Saudi Arabia is attempting to transition its economy away from a reliance on oil and is using its sovereign wealth fund and issuing debt to soften the impact of low oil prices and invest in diversifying the economic. If an OPEC agreement leads to higher oil prices, it is likely that there will also be a listing of the nation’s oil company Saudi Aramco to raise further funds for investment.


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