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US inflation leaps to 2.5%, as UK real wage growth slides - business live
US inflation leaps to 2.5%, as UK real wage growth slides - business live
(35 minutes later)
4.54pm GMT
16:54
US markets continue to hold onto most of their gains following Trump’s tax and regulation comments. Neil Wilson, senior market analyst at ETX Capital, said:
Bang on cue, and no doubt with an eye to outshine Janet Yellen, Donald Trump offered a tantalising foretaste of planned tax reforms that sent the Dow soaring to new record highs.
The DJIA just bounced off 20,604 level after the president said he will greatly reduce taxes. Markets are taking this as the fodder they need for a fresh pop higher. He was short on details but based on what we’ve seen so far from this radical president there is no reason to think that the tax plans will be anything less than a major shift in US fiscal policy. Major pro-business tax reform has been on the cards but today’s comments reiterate the president’s intentions.
4.40pm GMT
16:40
Asked about border adjustment tax and its effect on the economy, Yellen says I don’t think its appropriate for me to weigh in on specifics on this policy.
4.37pm GMT
16:37
On regulation, Yellen says the Fed is concerned about regulatory burden and if that was not clear she wants to clarify it. (There has been a lot of talk about Dodd Frank and the regulations which were put in place to try and improve the banking system after the financial crisis, with some senators calling for their removal a la Trump and some saying they have protected investors. Yellen is not keen on rolling back on Dodd Frank but clearly feels the need to avoid being seen as putting unnecessary burdens on business.)
4.25pm GMT
16:25
Back with Yellen and she is asked about her potential relationship with the new Treasury secretary, the ex-Goldman Sachs banker Steven Mnuchin.
She says she looks forward to a strong working relationship with Mnuchin.
4.15pm GMT
4.15pm GMT
16:15
16:15
US markets seem to be reacting more to Trump than Yellen:
US markets seem to be reacting more to Trump than Yellen:
Trump says he will greatly reduce taxes - the Dow responds... pic.twitter.com/Zgkd2ijc6U
Trump says he will greatly reduce taxes - the Dow responds... pic.twitter.com/Zgkd2ijc6U
4.10pm GMT
4.10pm GMT
16:10
16:10
Senator McHenry, who wrote to Yellen calling on the Fed to halt talks over international agreements about banking regulations until President Donald Trump has a chance to review their work and replace top negotiators, repeats his question.
Senator McHenry, who wrote to Yellen calling on the Fed to halt talks over international agreements about banking regulations until President Donald Trump has a chance to review their work and replace top negotiators, repeats his question.
Yellen: Nothing is a rule that is effective in US until regulatory agencies have gone through the normal rule making process. Nothing binds the Fed to carry out agreements in our our rule making in US. In some cases we don’t agree with the outcomes and have no intention of putting [them] in place.
Yellen: Nothing is a rule that is effective in US until regulatory agencies have gone through the normal rule making process. Nothing binds the Fed to carry out agreements in our our rule making in US. In some cases we don’t agree with the outcomes and have no intention of putting [them] in place.
He asks if the Fed will wait for the new regulators to be in place, and takes from Yellen’s reply that the answer is no.
He asks if the Fed will wait for the new regulators to be in place, and takes from Yellen’s reply that the answer is no.
4.01pm GMT
4.01pm GMT
16:01
16:01
Back with Yellen, and the questions seem more directly political and partisan than a day earlier, with some interruptions when the Fed chair is answering:
Back with Yellen, and the questions seem more directly political and partisan than a day earlier, with some interruptions when the Fed chair is answering:
The rudeness of ill-informed members of the House Financial Services Committee is always amazing during Fed chair testimony.
The rudeness of ill-informed members of the House Financial Services Committee is always amazing during Fed chair testimony.
3.59pm GMT
3.59pm GMT
15:59
15:59
Meanwhile President Trump is talking again about chopping regulations and his tax reforms:
Meanwhile President Trump is talking again about chopping regulations and his tax reforms:
US Pres. Trump: Cutting Regulations, ‘Massive Amounts’
US Pres. Trump: Cutting Regulations, ‘Massive Amounts’
US Pres. Trump: Tax Reforms To Be Ready In ‘Not Too Distant Future’
US Pres. Trump: Tax Reforms To Be Ready In ‘Not Too Distant Future’
3.50pm GMT
3.50pm GMT
15:50
15:50
Away from Yellen, and US crude stocks rose by more than expected last week, as did gasoline inventories.
Away from Yellen, and US crude stocks rose by more than expected last week, as did gasoline inventories.
Crude stocks rose by 9.5m barrels compared to analyst forecasts of a 3.5m increase. Gasoline inventories rose by 2.8m barrels, better than the 752,000 drop expected.
Crude stocks rose by 9.5m barrels compared to analyst forecasts of a 3.5m increase. Gasoline inventories rose by 2.8m barrels, better than the 752,000 drop expected.
3.44pm GMT
3.44pm GMT
15:44
15:44
After various comments and questions on Dodd Frank as per Tuesday, next up is Senator Barr who asks what the “serial failure of the Fed’s forecasts on the economy” tells us about the Fed’s policy.
After various comments and questions on Dodd Frank as per Tuesday, next up is Senator Barr who asks what the “serial failure of the Fed’s forecasts on the economy” tells us about the Fed’s policy.
Yellen says the Fed focuses on maximising unemployment not economic growth. Economic growth is disappointing but unemployment has come down substantially. We are close to meeting our labour market goals.
Yellen says the Fed focuses on maximising unemployment not economic growth. Economic growth is disappointing but unemployment has come down substantially. We are close to meeting our labour market goals.
The reason [for the growth performance] is that productivity growth in the US economy has been disappointing. (Much as she said on Tuesday)
The reason [for the growth performance] is that productivity growth in the US economy has been disappointing. (Much as she said on Tuesday)
Updated
Updated
at 3.46pm GMT
at 3.46pm GMT
3.22pm GMT
3.22pm GMT
15:22
15:22
Janet Yellen has begun her second day of testimony, and is giving the same opening remarks as on Tuesday, pointing to a US rate hike before long.
Janet Yellen has begun her second day of testimony, and is giving the same opening remarks as on Tuesday, pointing to a US rate hike before long.
Updated
Updated
at 3.35pm GMT
at 3.35pm GMT
2.46pm GMT
14:46
Wall Street in mixed opening
With US inflation and retail sales pointing to an interest rate rise - which could dampen earnings at American companies - investors are playing it cautiously at the start of US trading and ahead of Janet Yellen’s latest testimony.
The Dow Jones Industrial Average is currently up 20 points or 0.1% but the S&P 500 opened 0.09% lower and the Nasdaq Composite dipped 0.07%.
2.21pm GMT
14:21
More US data, showing industrial production unexpectedly fell in January.
Warm weather meant a drop in output from utilities, offsetting rises in manufacturing and mining. So the Federal Reserve’s industrial production index dipped 0.3% compared to expectations that it would remain flat. In December the index showed a rise of 0.6%, itself marked down from an initial reading of 0.8%.
#UnitedStates Industrial Production month-on-month at -0.3% https://t.co/if5ZbL1j2Y pic.twitter.com/2KnQBf9JkL
(The above shows the December figure before the revision)
2.07pm GMT
14:07
A reminder that Fed chair Janet Yellen will be up before the financial services committee of the House of Representatives in just under an hour’s time.
2.04pm GMT
14:04
Rob Carnell at ING Bank reckons the figures mean the Fed is now more likely to raise rates at its next meeting in March:
Whilst headline inflation gains can be put down to the impact of helpful base effects, the rise in the core rate, coupled with a better trend in wages growth, sends a clear message that the US economy is now running a little hot, the labour market is tight, and the time for inaction and caution from the Fed is over.
Janet Yellen sounded a little more hawkish in her Senate testimony, and that got markets toying again with the idea of a March rate hike. But the data is now doing her work for her, and should push expectations further in this direction.
The conclusion we reach from the inflation data is supported also by activity data – in the form of a further strong retail sales figure...The probability of a March Fed hike implied from the Fed funds curve is 42%. We don’t need much more of a push for a March hike to become the market base case.
2.01pm GMT
14:01
US inflation jumps: What the experts say
Here’s some instant reaction to the surge in the cost of living in America.
Paul Sirani, Chief Market Analyst at Xtrade.
“Today’s figures showed inflation climbed to a five-year high, with the US economy continuing to walk down the same path that led the Federal Reserve to raise interest rates in December.
“Under the current levels of inflationary pressure, all eyes will be on Fed Chair Janet Yellen, with investors pencilling in March for the first rate hike of a possible three.
“However, uncertainty continues to plague the political landscape, and Yellen will seek further clarity of President Trump’s policies before making a decision when they convene next month.”
The dollar is on a tear: -Best day in a month-5-week high-On its longest winning streak in 5 years (up for 11 days in a row) pic.twitter.com/b8opyoaFtB
Federal Reserve chair Janet Yellen suggested on Tuesday that interest rate rises would be “appropriate” if the US economy carries on as expected, and this new data can only confirm that belief.
(Yellen is due to give the second part of her testimony later but it is likely to be much the same as the previous session.)
Dennis de Jong, managing director at UFX.com, said:
Fed Chair Janet Yellen has indicated that interest rate rises are very much in her plans for the US economy in the year ahead, and today’s inflation data will only serve to underline her stance.
Inflation sailed past the Fed’s two per cent target and with economic growth expected to tighten, Yellen may well intervene on multiple occasions in the coming months.
The question many investors will be grappling with is when, and not if, rates rise.
Naeem Aslam, chief market analyst at Think Markets UK, said:
Yellen did not provide an explicit timeline in relation to interest rate hike and she is not going to do that today as well. Her job in these events is to manage the market expectations for any future interest rate... However, the CPI data released today has increased more pressure on her and she will be quizzed more intensively.
Having said that, we anticipate that the Fed will be able to fire another bullet during the next quarter (when it comes to the interest rate). Yes, sturdy growth and eroding slack in the jobs market are validating the Fed’s economic forecasts, but the wild card is still the Trump’s fiscal and tax plans. The Fed has removed the reference to transitory energy factors from their statement, and for us, it sends the signal that they are confident in achieving their mandate inflation target.
But there were some worse than expected outcomes in the day’s data:
Weakest point in US inflation data release: earnings. Real avg weekly earnings -0.4% in Jan vs. flat expected and +0.3% in Dec
1.41pm GMT
13:41
US inflation and retail sales smash forecasts
Boom! Two pieces of US economic data have just hit the wires and moved the markets.
The big news is that America’s inflation rate has hit a four-year high last month, jumping from 2.1% to 2.5%.
On a monthly basis, prices rose by 0.6% - twice as fast as expected - as households paid more for petrol (oh ok, gasoline) and food.
Retail sales have also smashed forecasts, growing by 0.4% last month - or 0.8% if you exclude automobile sales.
Huge US dataRetail sales and inflation both double expectedeveryone at Fed watching ...
Investors are betting that this data puts more pressure on the US central bank to raise interest rates in March. That’s driven up the yield, or interest rates, on US 10-year government bonds.
Rates spike higher after inflation and retail sales data that beat expectations. https://t.co/JbW6qoagIZ pic.twitter.com/1J7JCd8Dg9
The dollar is also surging, sending the pound reeling to just $1.238 - down almost a whole cent today.
But there is a fly in the soup -- average weekly earnings paid to US private workers fell by 0.4% in January. As in Britain, employees aren’t getting the full benefits of the recovery.....
US retail sales & inflation well above expectations, possibly putting March rate hike on table. BUT, earnings far worse than forecast, -0.4%
1.22pm GMT
13:22
Nick Macpherson, former top civil servant at the Treasury, makes an interesting point about today’s employment report -- there are now more job vacancies than people claiming jobless benefit.
Vacancies higher than claimant count for 1st time in 50 years. Reminder of labour market's flexibility & migration's role in lubricating it.
According to the ONS, there were 751,000 job vacancies for the 3 months to January 2017, while 745,000 people claimed unemployment related benefits in January.
The Wall Street Journal’s Mike Bird has helpfully plotted both sets of data for us:
No. of unemployment benefit claimants now lower than no. of job vacancies. Wasn't even true in '07 - @nickmacpherson2 says 1st time in 50yrs pic.twitter.com/P4HvPlzVtQ
There is a caveat (as ever...). Advertising job vacancies is cheaper than in the past, thanks to the internet, so employees may be tempted to speculatively offer positions and see who applies.
But this could reinforce the point about Britain’s labour market approaching full capacity. But if that’s really true, why aren’t wages accelerating as workers flex their muscles and threaten to walk?
One argument is that there’s more slack in the system than the figures suggest (this is the Bank of England’s argument for not raising interest rates). Another is that the traditional relationship between pay and unemployment has broken down since the financial crisis - which doesn’t bode well for wage rises this year....
12.58pm GMT
12:58
CBI: Wage growth is 'stubbornly sluggish'
The slowdown in real pay growth is causing concern in business, as well as in Westminster -- and prompting calls for government action.
Even the CBI, whose members are in a decent position to raise salaries among the ranks, are worried. Rachel Smith, their principal labour market economist, argues that productivity (a long-running problem in Britain) needs to improve.
And she singles out business rates as a big concern.
“Pay growth remains stubbornly sluggish, which is a concern given rising inflation. There are tentative signs that productivity is picking up, but there is further to go before it can underpin faster wage growth.
“Companies will be looking to the Budget to see adjustments to business rates along with measures to boost educational performance, helping firms to drive faster productivity growth.”
The rates paid by many businesses are going up sharply in the next few years, with the City of London facing a £1.4bn bill. That’s going to leave less money for pay rises.
Shadow work and pensions secretary Debbie Abrahams is also sounding the alarm on living standards:
“We welcome the overall increase in employment but are concerned that wide regional differences in the numbers of people in work remain.
“It is also worrying to see that rising living costs are quickly catching up with wage growth. If this trend continues, the Government’s abysmal record on living standards will get even worse.”
12.07pm GMT
12:07
The Joseph Rowntree Foundation have seized on today’s wage figures to hammer home their warning that millions more people risk being dragged into poverty by rising inflation.
JRF says:
“Record employment in the economy is welcome and work has to be the best route out of poverty. But we know employment alone will not always help people reach a decent standard of living.
“Our analysis today shows four million more people over the last six years have fallen below a decent leaving standard, meaning they are struggling to make ends meet.
“Tackling the high cost of living is crucial to helping just managing families, particularly with a challenging outlook: inflation is likely to average 2.6% this year, in sharp contrast to the very low inflation of recent times.
“Government focus on modest incomes is welcome, but there is a fine margin between just managing today and poverty tomorrow.”
Read our respone to today's employment figures: We need to tackle the high cost of living to support #justmanaging https://t.co/ECtHUHHq5b pic.twitter.com/kYCv2vl1sQ
JRF’s report on the millions of ‘Just about managing’ families who don’t earn enough for a decent standard of living has caused quite a stir today.
It shows that some 30% of the population, or 19 million people, are living below the nationally-recognised minimum income standard (MIS) -- defined as having enough money to afford adequate housing, food and clothes.
Here’s our take:
And here’s Jo Michell, economics lecturer at Bristol Business School:
This doesn't tally with the 'inequality isn't getting worse' narrative. https://t.co/jzJB9zZCvq pic.twitter.com/VmC4b4p6Sj
11.48am GMT
11:48
Sam Tombs, economist at Pantheon, flags up that employment growth has slowed.
Lots of talk of a "resilient" lab market since the Brexit vote. Hard to square that with halving of jobs growth and Dec's 1.9% wage growth pic.twitter.com/0BQD2NGDs3
As mentioned earlier, the UK created another 37,000 jobs in the last quarter. That’s the weakest performance since the second quarter of 2015.
