Hello, and welcome to the latest Astute Market Overview, looking back over the week just gone.

We had the latest release of UK CPI inflation last week, which stole the headlines at 10.1%, still stubbornly into the double figures. In addition to electricity and gas, many of the items that are providing upward pressure to inflation are staples of our weekly shop, for example: pasta, flour,  milk, cheese, eggs, pork, sugar, butter, margarine, cooking oil, and jam. None of the food sub categories decreased in price vs a year earlier, and nearly all increased by double figures.

We can see that these items fall under essential spending, not discretionary spending. Furthermore, more and more mortgages are coming to the end of their fixed term in a higher interest rate environment, meaning that an increasing number of households will feel the pinch. This begs the question – is it necessary for the Bank of England to take more action to bring inflation down? We believe that the central bank is almost done with their base rate hikes; interest rates are nearing their peak.

Whilst inflation is still high, we expect that inflation will fall back over the year, starting with a fall in the headline figure next month, i.e. the pace of price increases will slow. One of the key reasons for this can be found in the basket of goods and services.

CPI is a measure of the change in cost of a basket of goods and services which is divided into categories. In March, the category “Housing, water, electricity, gas and other fuels” inflated in price the most, in fact, this has consistently been the case for the last 12 months. If you cast your mind back to April 2022, you may remember that the Ofgem energy price cap increased by 54%, meaning that there was a large increase in energy costs for many (the energy price guarantee was later introduced). As CPI is a measure of prices in a given month vs a year earlier, we’ve just had March’s reading, and the base for the next inflation reading is April 2022, which provides a high base for the cost of energy, and so this should bring the inflation figure down.

Also last week, the release of China’s Q1 Gross Domestic Product (GDP) showed strong growth of 4.5%, boosted by the retail sector and exports, notably the export of electric vehicles and their components.

China dropped its strict zero-Covid policy at the end of 2022, and the latest data show that the economy has rebounded strongly. The International Monetary Fund predict that this strong growth will continue, in fact in their latest World Economic Report, they predict that China will be one of the strongest contributors to global growth, both this year and next.

This GDP release comes in the wake of manufacturing, services and construction Purchasing Managers Index (PMI) for January, February and March that have all been into growth territory.

Some of the things we’ll be looking at this week include US and Eurozone GDP, and the university of Michigan consumer sentiment index. We’ll be back after the early May bank holiday to discuss what we’ve found interesting. See you then.