UK: Deflation Risks Continue to Rise Led From Declining PPI
UK: Deflation Risks Continue to Rise Led From Declining PPI
To end of the week is here dear reader as the United Kingdom released its producer price index (PPI) showing that they plummeted as a result of declining oil prices and crippled domestic demand led from the ongoing of job losses in the nation.
The Office for National Statistics (ONS) released its PPI input for the month of May coming in at 0.4% lower than the revised previous reading of 1.7% from -1.0% while the markets were expecting 0.8 percent. On the year they declined to -9.4% worse than the revised previous reading of -5.8% from -5.0% while it was anticipated to come in at -8.3 percent, this reading marked the fastest decline since November of 2001.
Taking this data into details we see that materials purchased on the month rose to 1.0% from the decline of 0.2% in the prior month which is showing us that demand is starting to rise in the economy while on the year is still weak as a result of the ongoing global recession that is weighing on consumer demand.
Input prices slid heavily as a result of 42.2% decline in oil prices yearly while 15.5% decline in imported metals, and both of these readings marked the worst drop since 1992 which was when records began.
Also when the pound is depreciated in the markets, therefore makes input prices more expensive as now the producer has to pay more for the same item they bought before with less money, yet as the sterling has been gaining grounds lately, will lower input prices.
Now turning to PPI output which is one of the factors used to determine the current levels of inflation in the economy, we see that for the month of May they fell to 0.4% lower than the revised prior reading of 0.7% from 0.6% and inline with expectations. Yearly, the index plummeted 0.3 lower than the revised preceding reading of 1.3% from 1.2% yet higher than the projected reading of negative 0.4 percent.
A major segment that pressured on PPI output were petroleum products that declined 1.6% on the month from the prior 4.1% while on the year they plunged 19.8% from 16.4%, marking the biggest drop since 1992. This shows that demand still on petroleum products is weak as still Britons are trying to brush off from the ongoing economic deterioration.
As for Core PPI output which excludes food and energy prices on the month fell to 0.2% lower than the revised prior reading of 0.5% from 0.4% while on the year they declined to 1.2% inline with expectations while worse than the prior revised reading of 2.5% from 2.4 percent.
From the data we continue to see signs of deflation while the Bank of England and government are already exhausting all measures to avoid deflation as much as possible yet the central bank Governor Mervyn King project inflation to fall down to 0.4% by the end of this year before climbing to 1.5% at the end 2010.
The inflation rate is projected to remain below the target in the medium and long term as a result of the economic deterioration that is still visible in the nation.
The central bank already began applying quantitative easing as they so far bought 80 billion pounds of gilts from the 125 billion pounds set towards stimulating lending and battling deflation risks while they have rates down to the lowest on records since the bank’s foundation at 0.50 percent.
We see here that inflation will surely fall below the bank’s set target rate as still the global recession is weighing on oil prices despite the latest incline we have been seeing as still industries production output have are still low, next to crippled domestic demand.
This week ends with worries regarding deflation risks there are still a factor which weighs on the outlook of the UK yet lately we have been gaining additional proof that the worst of this global recession is ending especially as the main economic sectors have been showing recovery.
The UK stocks today are rising as a result of Rio Tinto Group selling shares while venturing with BHP Billiton to raise $21 billion. The FTSE 100 Index as of 13:28 GMT gained 95.43 points or 2.18% to 4,482.37 points.
Ecpulse
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