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December 14, 2010 12:04 am
House prices continued their slide in November, although at a slightly slower rate than in October, while new signs of inflationary pressures emerged, illustrating the challenges for monetary policymakers.
The Royal Institution of Chartered Surveyors said a balance of 44 per cent of surveyors reported prices falling in November rather than rising, down from the balance of 49 per cent in October. Meanwhile, the number of newly agreed sales slipped further, with the balance reporting a fall climbing to 14 per cent from 12 per cent – the first time sales have fallen for two consecutive months since October 2008.
Furthermore, the ratio of sales to the stock of properties for sale on surveyor’s books – often viewed as a leading indicator of house prices – edged downward to 14.8 from 15.2 in November, hitting the lowest reading in the survey since June 2009.
Separately, the cost of goods purchased by the nation’s manufacturers rose by 0.9 per cent in November from October, mainly reflecting the rise in the price of crude oil and fuels and offset slightly by a decline in the price of home-produced food goods. Of that rise, 0.6 per cent was accounted for by prices for imported goods.
Although rising prices for manufacturers do not necessarily translate into higher consumer price inflation, they do indicate pressure on profits for those who do not pass along higher prices.
Simon Hayes, economist at Barclays Capital, said the data suggested it was the weakness of sterling – which also appears to be boosting export demand – that was behind higher prices. “Its effect on consumer goods price inflation will depend on the extent to which producers pass on these costs to consumers, which so far has been significant,” Mr Hayes said.
In a speech on Monday Charlie Bean, deputy governor of the Bank of England, touched on the relationship between the weaker pound and inflation, saying the latter had been well above what the Bank’s monetary policy committee had forecast. Even if the causes were temporary, he said, there was a risk that general expectations of rising prices might eventually affect the long-term trend of prices and wages.
“But given the unexpected strength of inflation in recent months, this risk [of rising inflationary pressure] has probably increased of late. So we shall be watching these indicators, and their impact on wages and prices, like proverbial hawks,” Mr Bean said.
Above-target inflation was likely to continue “for a while yet”. Although the MPC believed temporary factors were driving rates, it would “become appropriate to begin withdrawing the current extraordinary degree of monetary stimulus. And when that point comes, the MPC will aim to do so in a timely but measured fashion”.
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