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• UK consumer prices fall with CPI coming in at 10.5% but services inflation rose
• Wages growth, sticky food prices and elevated energy costs still set to mean further rate rises on the cards
• Japanese stocks roar ahead after stimulus programme left unchanged.
• Burberry update indicates positive trends proceed for the posh brand
• Paperchase puts up the For Sale signs as stationer struggles amid weak demand

UK Inflation Climbs Down

As energy prices retreat, inflation is finally climbing down from its dizzying heights nevertheless it’s removed from a vertiginous descent. The CPI snapshot got here in a little bit lower than expected, at 10.5% and it’s a welcome sign for corporations and consumers. Core prices, stripping out volatile energy and food costs also dropped back to six.3% from 6.6%.

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But with the headline rate of inflation still firmly in double digits there remains to be a protracted strategy to go before the worth spiral is under control, particularly provided that services inflation heated up again, rising from 6.3% in November to six.8% in December.

Food prices have continued their upwards march with higher prices in supermarkets, restaurants and hotels keeping the headline rate elevated. There have been warnings from industry bosses that prices will take considerable time to come back down.

Gas prices have fallen back to levels not seen since September 2021, amid expectations more LNG shall be heading to Europe, pushing fears of an energy crisis further into the space. Crude oil is back below the degrees it was before Russia invaded Ukraine, nevertheless it’s creeping up, with Brent Crude rising above $86 a barrel amid hopes of recovery of demand in China.

The most recent jobs snapshot shows that wage growth is especially strong within the private sector, increasing by 7.2% within the three months to November in comparison with a yr earlier. This might mean corporations will pass on those higher wage costs through more price rises. If this happens, it could add to the inflationary spiral.

With the roles market still tight, energy set to remain elevated and relentless food price rises continuing it is going to mean inflation stays stickier for longer. So there remains to be a protracted strategy to go, and it looks like investors should brace for further rate rises from the Bank of England, with a 0.5% increase still firmly on the cards next month.

Surge In Japanese Stocks

Japanese stocks have surged ahead in a roar of relief after rates of interest were kept on hold, the bond-buying programme was kept intact, and the era of ultra-cheap money will carry on rolling.

There had been expectations of a change to monetary policy after a tweak in December when the yield of the 10-year bond was being allowed to maneuver 0.5% away from its 0% goal, as an alternative of the previous 0.25% range limit set. This was taken as an indication the Bank of Japan was testing the water ahead of further tweaks.

But policymakers will not be wading in, though inflation is currently above goal, provided that they foresee a fall ahead and as an alternative will stay super-flexible with bond buying. The yen has fallen back 2% against the dollar which can further increase the worth of imports within the short-term however the bank is judging that with growth slowing down, the economy still must be stimulated.

Burberry’s Sales Slowdown

Burberry Group plc (LON:BRBY)’s shares had been climbing back towards pre-pandemic highs buoyed by expectations of upper demand resulting from China’s re-opening but this isn’t yet showing up within the figures, with sales growth overall disappointingly slowing to 1%. The Chinese market continues to be sideswiped by the pandemic, with store sales down 23%.

Investors will need one other big dose of patience before well-heeled Chinese shoppers snap back into boutiques and international stores. Nevertheless, elsewhere festive sales surged particularly across Europe with double digit growth recorded.

Particularly, the acceleration of sales of leather ranges are an encouraging sign. Efforts to raise the brand have been paying off, provided that a luxe image is rewarded by improved loyalty amongst its wealthy customers, who’re way more insulated from inflationary pressures.

Paperchase has put up a For Sale board, because it struggles to dump its stationary wares with its latest owners clearly finding it difficult to show around the corporate’s fortunes. It’s one other sign of the tough operating environment for retailers selling discretionary goods. It’s been a super-tough few years for the corporate, which owns 106 stores across the UK.

It fell into administration throughout the pandemic, before being bought after which sold again to the Quilam Capital consortium. The chain launched a January fire-sale to offload excess inventory and is being sold as a going concern, but consumers set to be super-cautious amid rising prices and better rates of interest, potential buyers could also be hesitant to tackle the danger.”

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown