Inflation Report May 2008

Costs and prices

Chart 4.1 Measures of consumer prices

Chart 4.2 Brent crude oil prices (a) Sources: Bloomberg and Thomson Datastream. (a) Futures prices and spot price for May 2008 are averages during the fifteen working days to 7 May The equivalent data for the May 2004, November 2006 and February 2008 Reports are averages during the fifteen working days to 5 May 2004, 8 November 2006 and 6 February 2008 respectively. (b) Monthly averages of daily data. Forward price for delivery in 10 to 21 days’ time.

Chart 4.3 Market beliefs about oil prices six months ahead (a) Sources: New York Mercantile Exchange and Bank calculations. (a) Data refer to the price of West Texas Intermediate crude oil. These calculations use options data and assume that investors are risk-neutral. For more details, see Clews, R, Panigirtzoglou, N and Proudman, J (2000), ‘Recent developments in extracting information from options markets’, Bank of England Quarterly Bulletin, February, pages 50–60.

Chart 4.4 Sterling oil and gas prices (a) Sources: Bank of England, Bloomberg and Thomson Datastream. (a) Monthly averages of daily data. (b) One-day forward price of UK natural gas. (c) Forward price for delivery in 10 to 21 days’ time.

Chart 4.5 Import prices (a) (a) Excluding the estimated impact of missing trader intra-community (MTIC) fraud. (b) The 2008 Q1 observations are based on the three-monthly growth of the imported goods deflator (including and excluding oil) in January and February.

Chart 4.6 UK import prices, the exchange rate and M6 export prices Sources: Bank of England, ONS and Thomson Datastream. (a) The M6 consists of Canada, France, Germany, Italy, Japan and the United States. The index is an average of domestic currency export prices of goods and services for those countries, weighted by their share of UK imports in Due to a lack of data, the 2007 Q4 figure excludes Italy. (b) Excluding the estimated impact of missing trader intra-community (MTIC) fraud. The 2008 Q1 observation is based on the three-monthly growth of the imported goods deflator in January and February.

Chart 4.7 Changes in measures of inflation expectations since August 2007 Sources: Bank of England, Bloomberg, Citigroup, GfK NOP, research carried out by GfK NOP on behalf of the European Commission and YouGov. (a) Net balance expecting prices to increase. The question asks: ‘In comparison with the past twelve months, how do you expect consumer prices will develop in the next twelve months?’. (b) Median of respondents’ expected change in prices in the shops generally. (c) Median of respondents’ expected change in prices of goods and services. (d) Implied instantaneous inflation rates five and ten years ahead based on the difference between the interest rates prevailing on nominal and index-linked government bonds.

Chart 4.8 Factors influencing people’s perceptions of current inflation (a) (a) Percentage of respondents to the February 2008 Bank of England/GfK NOP Inflation Attitudes Survey who said that each category was ‘very important’ when forming their current inflation perception. (b) For example, mortgage payments or rents..

Chart 4.9 Real take-home pay relative to productivity (a) (a) 1996 Q1–2007 Q4. (b) Households’ post-tax wages and salaries divided by the consumption deflator. Includes non-profit institutions serving households. Productivity is calculated from ONS data on non-oil and gas market sector output divided by private sector employees. (c) Ratio of market sector non-oil and gas output prices to the consumption deflator, multiplied by the ratio of one minus the effective rate of tax on employees to one plus the effective rate of employers’ social contributions. Profitability defined as the ratio of profits to value-added output.

Chart 4.10 Public and private sector regular pay (a) (a) Three-month moving average measures based on the average earnings index. The figures in parentheses show employment shares in 2007.

Chart 4.11 Manufacturing output prices and companies’ short-term pricing intentions Sources: BCC, CBI, CBI/Grant Thornton, CIPS/NTC and ONS. (a) Three measures are produced by weighting together surveys from the BCC (manufacturing and services), the CBI (manufacturing; consumer, business and professional services; and distributive trades), and CIPS/NTC (manufacturing and services) using nominal shares in value added. The CIPS/NTC surveys ask about prices over the past month. (b) Manufacturing sector excluding excise duties..

Chart 4.12 Agents’ survey: share of costs expected to be passed on to customers (a) (a) Based on 190 responses to a survey of companies by the Bank of England’s regional Agents between late January and early February 2008, weighted by respondents’ turnover. The survey asked respondents: ‘How much of any change in costs do you intend to pass on to your customers?’.

Tables

Table 4.A Food and domestic energy prices (a) (a) Non seasonally adjusted CPI inflation rates. The figures in parentheses show the 2008 weights in the CPI basket. Percentage changes on a quarter earlier Q1Q2Q3Q4Q1 Electricity, gas and other fuels (3.5%) Food and non-alcoholic beverages (10.9%)

Percentage changes on a year earlier Averages – Jan.Feb.Mar H1 H2 (1) Regular pay n.a. (2) Pay settlements (b) (1)–(2) Pay drift (c) n.a. (3) Total average earnings n.a. (3)–(1) Bonus contribution (c) n.a Table 4.B Private sector earnings (a) Sources: Bank of England, Incomes Data Services, Industrial Relations Services, the Labour Research Department and ONS. (a) Based on the monthly average earnings index. Three-month average measures. (b) Average of private sector settlements over the past twelve months. (c) Percentage points.