Deflation Part III

chucky

lemonjelly wrote: »

The cynic in me though thinks "yeak right." I feel that the oil companies are unlikely to reduce pump prices if the £ recovers.

you should go and see one of those exorcist people to get the demon out of you

Spiv_2

U.K. October Producer Prices Rise 0.2% as Costs Jump

U.K. producer prices rose for an eighth month in October as oil and import costs climbed and manufacturers sought to defend profit margins damaged in the longest recession on record. The prices of goods at factory gates rose 0.2 percent from September, when they gained 0.5 percent, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 19 economists was an increase of 0.3 percent. Fuel and raw material costs surged 2.6 percent.
The report suggests factories are finding scope to raise prices as the recession shows signs of ending, although increases may be limited by rising unemployment and sharpened competition.

“There isn’t that much pricing power and there’s a squeeze still on margins,”

The recession has sapped price pressures from the economy and in August Bank of England policy makers predicted consumer- price inflation may stay below the 2 percent target over the next three years. It stood at 1.1 percent in September.
The increase in fuel and raw material costs last month was the biggest since June 2008 and beat the median forecast for a 1.5 percent increase. Crude oil prices climbed 6.8 percent and sterling’s weakness made imported goods more expensive. Only prices of home-produced food declined. Input prices rose 0.1 percent from a year earlier.

Input prices are likely to rise and that will increase pressure on margins and will encourage manufacturers to try to pass on more increases,” said Howard Archer, chief European economist at IHS Global Insight in London.

FULL ARTICLE
Bloomberg update 2

Generali

Input prices are likely to rise and that will increase pressure on margins and will encourage manufacturers to try to pass on more increases,” said Howard Archer, chief European economist at IHS Global Insight in London.

My view is that, given the lack of strength of demand in the UK (and indeed much of the world) producers will struggle to pass on price increases.

If that is the case, in the longer term, say 6-12 months, we would be likely to see output start to fall again.

What happens next is largely about banks and consumers - can/will banks lend and can/will consumers borrow to return consumption to where it was before. I see little evidence of this happening. Even Australia with her much vaunted miracle economy has pretty fragile consumer demand and a household sector that is looking to pay down debt.