The Daily Update - US inflation and UK inflation baskets

It’s US consumer price inflation day again, and it seems forecasts were dead on, with the Core CPI up 1.8% YoY. This made for a relatively muted market reaction with 10-year US Treasury yields first falling 3 basis points but then returning to 2.86%. At around the same time President Trump tweeted CIA Director Mike Pompeo is to become his new Secretary of State, finally unseating a discordant Rex Tillerson; the White House confirmed Gina Haspel as nominee to replace Pompeo as CIA Director; and the expectation is that a replacement for Gary Cohn may also be announced imminently. Earlier Trump forenamed CNBC’s Larry Kudlow as having ‘a very good chance’ at becoming the new director of the White House National Economic Council.

Meanwhile in our quiet corner, Chancellor Philip Hammond delivered his first ‘Spring Statement’ [sic] after personally scrapping the superfluous tradition of a semi-annual budget. As expected, following this move, there were no significant announcements today with the speech focused around the OBR forecasts of ‘rising wages, declining inflation, a falling deficit and shrinking debt’. The combined effect of US and UK news/data sent the dollar down and sterling up for the third trading day - to March highs of 1.396 (at time of writing). To top it off the OECD today also upgraded UK’s growth forecast, along with most countries, with global growth now forecasted to be 3.9% this year: 0.2% higher than forecast in November. However, don’t get too excited as UK growth expectations of just 1.3% in 2018 and 1.1% in 2019 were highlighted as the lowest projections of all the ‘leading advanced and emerging economies’.

With such relative quiet, some will have found the latest report from the Office of National Statistics on inflation basket hedonic adjustments more interesting. Today’s ONS report detailed their changes to the consumer price inflation basket - adding women’s exercise leggings, children’s soft-play and action cameras whilst removing pork pies and Edam cheese. However to avoid the misconception that the nation is getting healthier, ready-made mash potato and quiche were also added to the basket along with clarifications that some of these changes were principally to help with measuring accuracy and not just to account for market trends. In total 15 items were added, 14 removed and 7 modified, as well as a couple of methodological changes, to the basket of 714 representative consumer goods.

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