ALEX BRUMMER: The magic of falling prices

There should be no doubt as to the most critical piece of economic data in 2023. Beating back inflation will be the measure by which governments are judged.

Even though central banks, largely, are responsible for damping down higher prices, most ordinary citizens will find it hard to separate the role of monetary authorities from government.

So, should the US Federal Reserve get on top of the cost of living, it will be Joe Biden who takes credit ahead of the 2024 presidential election, in spite of fiscal laxity.

The inflation genie: But fears of a wage and price spiral, of the kind seen in the 1970s, appear to be in retreat

Similarly, it is no accident that Rishi Sunak has chosen to make halving the rate of inflation one of his main goals this year.

His government can point to actions designed to rein in prices, most notably keeping a tight rein on borrowing and holding back the tide of over-exuberant pay demands. 

But it is the Bank of England, having allowed the inflation genie to escape in 2021, which is now tasked with calming it down.

Much interest is focused on the January Consumer Price Index (CPI) in the US.

America is a little ahead of Britain and Europe in bringing down the headline rate of price increases. Strong employment data means that it is proving hard to put a lid on consumer demand.

To a lesser extent the same may be true in the UK, in spite of all the talk of a cost of living crisis and squeezed real incomes.

As anyone who has visited a UK airport recently will testify, there is a large segment of the population still living high on the hog.

The latest upbeat booking data from Anglo-German travel agents Tui is testimony to that.

At first glance, January’s US CPI figures look disappointing. The headline rate came in at 6.4 per cent in the year to January after a 0.5 per cent lift in the monthly rate.

This is above expectations, but does show falling American prices for seven months in a row.

It is not enough to discourage the Fed from raising rates again from the current 4.5 per cent to 4.75 per cent range.

But the higher-than-expected outcome looks largely down to a 2 per cent rise in energy prices, which is slightly mystifying given the plunging direction of wholesale prices.

That is something which the Biden administration might want to check.

What is evident is that a combination of decreasing core goods inflation, lower housing costs and moderating labour market expenses should help cool future headline prices.

Britain is far more dependent on global fuel costs than the US – and that may take longer to seep through to lower headline rates.

What should be encouraging in Whitehall and at the Bank is that fears of a wage and price spiral, of the kind seen in the 1970s, are in retreat. 

Three-month average weekly earnings growth decreased to 5.9 per cent in December, which is lower than expected.

Private sector pay is a source of concern – but remains below inflation.

That could be a comfort to the Government as it seeks to see off fanciful demands from public sector unions.

In spite of a smaller than expected decline in US prices, markets are concluding that the worst of the inflation bulge and the cycle of interest rate rises is over.

Voda muddle

The arrival of 81-year-old ‘cable cowboy’ John Malone on the Vodafone share register, with a 5pc stake, underpins the market view that this is a company drifting without any sense of direction.

The pioneer in mobile telephony is now the plaything of billionaires, activists and media players as its interim chief executive Margherita Della Valle seeks to steady the enterprise.

Unless someone at Vodafone gets a grip, one of the few 21st century champions of UK technology risks falling foul of an overseas takeover, or being broken up.

Malone’s Liberty Global knows that, as a 50 per cent investor in competitor Virgin Media, competition rules mean that it has no realistic chance of a full bid. So it was easy to declare that was not the intention.

Its goal is to be at the table as the knot is untangled.

Previously, this column has been sceptical about the sense of a merger with Three, giving UK consumers less choice.

A new, respected CEO (even if top dollar has to be paid) alongside a deal with Three might give Voda a fighting chance of seeing off the ghouls.

This post first appeared on Dailymail.co.uk