UK shop price inflation jumped to a series high

Emily Nicol

German inflation at greater risk of unwelcome increase after NRW upside surprise
After yesterday’s upside inflation surprises from France and Spain, this morning’s figures from Germany’s largest state – North-Rhine Westphalia – similarly provided uncomfortable reading, reporting a second successive rise in the headline CPI rate in February of 0.2ppt to 8.5%Y/Y. Additional significant pressure this month in NRW state came from food, while household energy inflation eased slightly. And with inflation of clothing and various consumer-facing services (including hospitality and entertainments) higher, core inflation looks to have picked up too. The data from the other German states will be published throughout the morning, with the national figures due at lunchtime. The median forecasts on the Bloomberg survey for national German inflation were for declines of 0.2ppt to 8.5%Y/Y (for CPI) and 9.0%Y/Y (for the EU-harmonised HICP rate). And yesterday’s figures from the much smaller Rhineland-Palatinate state were also lower, down 0.2ppt to 8.4%Y/Y. However, this morning’s NRW state data make clear that the risks of an unwelcome increase in German inflation in February are now substantive.

Germany will also publish its latest labour market figures, which are expected to report a third successive drop in the clamant count in February to be consistent with ongoing tightness in the labour market. Also due for release tomorrow are the final manufacturing PMIs for February, which are expected to align with the flash estimates that recorded the first non-contractionary reading in the output component for nine months, rising by 1.5pts to 50.4.

UK shop price inflation rises to a series high in February
Today’s BRC shop price inflation release also flagged upside risks to underlying price pressures in the UK as retailers continued to pass on higher input costs to consumers. According to the BRC, shop prices rose a further 0.4%M/M in February, taking the annual rate to 8.4%Y/Y, the highest since the series began in 2005. This in part reflected a further acceleration in food price inflation, by 0.8ppt to 14.5%Y/Y, with fresh foods inflation rising close to 16½%Y/Y. But retail prices continued to rise across the board, with non-food inflation up 0.2ppt to 5.3%Y/Y, with the BRC flagging notable rises in gardening tools and pet food. While the BRC expect to see retail prices fall back through the second half of this year as cost burdens start to fade, the further erosion of households disposable income highlights the very weak outlook for consumer spending.

Nationwide suggests UK house prices declined at the steepest annual rate since November 2012
The ongoing adjustment in the UK’s housing market will do nothing to support consumer confidence over the near term too. Certainly, today’s Nationwide house price report offered a gloomy assessment, with prices having declined in February for the sixth consecutive month and by 0.5%M/M, leaving prices some 3.7% below the August peak and the annual growth rate slipping into negative territory (-1.1%Y/Y) for the first time since mid-2020 and at the sharpest rate since November 2012. Given higher borrowing costs, the BoE’s bank lending numbers for January due shortly are likely to report that the number of mortgage approvals moderated for the fifth successive month, from December’s 2½-year low of 35.6k, while mortgage lending is also likely to have fallen back. Also due for release are the final manufacturing PMIs for February.

Chinese PMIs signal strong and broad-based rebound in Q1
Today’s Chinese PMIs came in well ahead of expectations in February, signalling a strong and broad-based rebound in activity as the country continued to benefit from the relaxation of Covid restrictions and return after the Lunar New Year holiday in January. In particular, the government’s official manufacturing output PMI surged a further 6.9pts to 56.7 in February, the highest reading since April 2012 and consistent with robust growth, underpinned the strongest growth in new orders since 2017 and the first above-50 reading in new export orders for almost two years. And while the improvement in the Caixin PMIs – that focuses more the private sector SMEs – was less pronounced, it too saw the output component jump more than 4pts to 53.3, the highest for more than two years. The recovery in the non-manufacturing survey was similarly encouraging, with the headline activity index up 1.9pts to 56.3, to be some 15pts above the December trough and the highest since November 2020. Overall, the composite output PMI increased a further 3.5pts in February to 56.4, to be trending some 8½pts above the Q4 average and suggestive of a significant rebound in GDP growth in Q1.

US manufacturing ISM to signal ongoing declines in production
In the US, focus today will turn to the manufacturing ISM survey which is expected to a report a fourth consecutive sub-50 reading in the headline index, with the production component expected to be consistent with contraction for a third consecutive month amid a slump in new orders. Construction spending numbers for January and weekly mortgage applications numbers are also due. 

Categories : 

Back to research list


This research report is produced by Daiwa Securities Co. Ltd., and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority and is a member of the London Stock Exchange and Eurex Exchange. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at  /about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at