Minimal inflation fall but southwards looks direction of travel

Comment Martin Flanagan

Inflation edged down to 3 per cent in December from 3.1 per cent in November. While still way above the Bank of England’s mandated target of 2 per cent, perspective is needed. Serious inflation rates? Try circa 20 per cent when the International Monetary Fund bailed out a profligate UK in 1976, 18 per cent heading into the early 1980s recession and prices 9 per cent higher in the early 1990s recession.

Now, those sort of rates are examples of seriously devalued money. In addition, there is good reason to think inflation has peaked in this cycle. In many ways it reflects that businesses have been passing on higher import prices of raw materials. That came about following the slide in sterling in the wake of the 2016 Brexit vote.

But the pound has now made up twothirds of the value it lost after the EU referendum, and so there is increasing reason to think inflation will fall back towards the 2 per cent target in 2018.

Another possible quarter point rise in interest rates by the Bank of England towards the back end of 2018 following the monetary tightening in November – its first in a decade – would also pave the way for inflation to fall farther faster.

Sluggish to non-existent earnings growth will also counter inflationary pressures. Meanwhile, in macro terms, an ageing population and the advent of disruptive technologies will also continue to exert downward pressure on prices.

In short, it may take a year or so, but the likelihood is inflation will trudge south.

Healthy returns for Greggs

Cholesterol on a stick for salad-dodgers was once the stereotypical image of bakery chain Greggs. Customers with pies in their eyes and on a comfort-eating roll.

But the chain’s solid 2017 sales, particularly given strong comparatives in recent years, is further evidence that Greggs has pulled off a neat trick.

The retailer has segued into healthy eating alternatives, embracing the glutenfree with gusto and widening its target market while not alienating its traditional core custom.

Meanwhile, in challenging economic times, Greggs has a value proposition while also benefiting from a time-poor generation’s inclination to eat on the move.

The business is one of the more resilient on the high street.