Inflation falls in UK, eurozone and Canada amid Covid-19 lockdowns as global trade tumbles – business live

Newsflash: Canadian inflation has fallen below zero as the Covid-19 pandemic continues to grip the global economy.

The annual Consumer Prices index across Canada fell by 0.2% in April, according to Statistics Canada. That’s down from a 0.9% year-on-year rise in March.

In April alone, the CPI dropped by 0,7% in April after a 0.9% monthly drop in March.

As in the UK, fuel and clothing both became cheaper under the lockdown – although food prices did jump.

Statistics Canada explains:

Compared with April 2019, consumers paid less for transportation (-4.4%), clothing and footwear (-4.1%), and recreation, education and reading (-0.7%). In contrast, the growth in food prices (+3.4%) accelerated in April 2020 and recorded the largest year-over-year increase of any major component.

Gasoline price slumped by 39.3% on a year-over-year basis in April, the largest year-over-year decline on record. Clothes and food prices fell 5.9% during April, which is the biggest monthly drop on record.

But food became significantly more expensive; including rice (+9.2%), eggs (+8.8%) and margarine (+7.9%) as consumers scrambled to stock up.

Higher sales and supply issues, including a slowdown in cross-border shipping due to COVID-19, contributed to higher prices for pork (+9.0%) and beef (+8.5%), Statistics Canada adds.

The Bank of England’s new governor, Andrew Bailey, must write to the UK chancellor to explain why inflation is just 0.8%, far from its target of 2%.

But what might he say? Our economics editor Larry Elliott has some ideas:

He might start by saying that the shuttering of much of the economy meant the April inflation rate had to include a bit of informed guesswork on the part of the Office for National Statistics (ONS) – because the usual field surveys that go into collecting prices were impossible during lockdown – but that the main reason for the drop in inflation was the collapse in oil prices, owing to a mismatch between global demand and supply.

But Bailey will also tell Sunak that underlying inflationary pressures are also weak. Clothing prices fell sharply because retailers were desperate to get rid of excess stock. The cost of travel goods were also down because nobody is travelling.

Greece’s finance minister has warned that its economy will probably shrink by at least 10% this year.

The Covid-19 pandemic is crushing Athens’ hopes of economic recovery in 2020, after years of extremely painful austerity. PM Kyriakos Mitsotakis is expected to outline his plans to revive the economy later today.

Reuters has the details:

Greece’s economy may shrink 10 to 13% this year following a lockdown imposed to stem the spread of the novel coronavirus, but the government will take steps to mitigate the impact, the country’s finance minister said on Wednesday.

Finance Minister Christos Staikouras told Greek radio Real FM that the economy, which emerged from a decade-long debt crisis and three international bailouts in 2018, can withstand a possible second wave of infections in autumn.

The conservative government will support businesses and protect jobs, he said, and plans to take measures that could contain the estimated recession by as much as 8 points.

“We aim for the economy to gradually return to the dynamic it had before the health crisis, in February,” Staikouras said.

Fast food chain McDonald’s has taken another step towards normality by resuming drive-through services at nearly 40 restaurants in the UK and Ireland.

All the UK restaurants are in the South East of England – including in Luton, Peterborough, Chelmsford, Ipswich, Watford, Medway, Harrow and West Sutton. Six sites in Dublin are also reopening.

McDonalds says it expects high demand. It has introduced new safe working measures to prevent Covid-19 spreading, but warns that sites could close again if necessary to protect staff.

World trade volumes are likely to “fall precipitously” in the first half of 2020 as the Covid-19 pandemic batters the global economy.

That’s the latest warning from the World Trade Organisation, which says its goods barometer is now “flashing red” as trade volumes fall.

This index of trade volumes has slumped to 87.6, the lowest since it was launched in July 2016 – and some way below the 100 points baseline.

The WTO warns that there is “no sign of the trade decline bottoming out yet”.

Today’s figures are consistent with the WTO’s April forecast that world merchandise trade could decline by between 13% and 32% in 2020, depending on how long the pandemic lasts – and how effective governments are at combating it.

Shipments of new cars have fallen particularly dramatically, the WTO adds, although technology products are holding up better.

The automotive products index (79.7) was weakest of all, due to collapsing car production and sales in major economies. The sharp decline in the forward-looking export orders index (83.3) suggests that trade weakness will persist in the short-run.

Declines in the container shipping (88.5) and air freight (88.0) indices reflect weak demand for traded goods as well as supply-side constraints arising from efforts to suppress COVID-19. Only the indices for electronic components (94.0) and agricultural raw materials (95.7) show signs of stability, although they too remain below trend.

City analyst Kit Juckes of Société Générale has spotted some interesting trends in the this morning’s UK inflation report:

Newsflash: Inflation across the eurozone has slumped to its lowest level in almost four years – just like in the UK.

Consumer prices in the euro area only rose by 0.3% annually in April, Eurostat reports. That’s the lowest reading since August 2016, down from 0.7% in March.

It says:

In April 2020, a month marked by COVID-19 containment measures in all countries, the euro area annual inflation rate was 0.3%, down from 0.7% in March. A year earlier, the rate was 1.7%.

As in Britain, lower energy prices pulled CPI down – thanks to the glut of crude oil caused by the pandemic and the price war between Saudi Arabia and Russia.

But, eurostat also found that food, alcohol and tobacco prices rose last month:

In April, the highest contribution to the annual euro area inflation rate came from food, alcohol & tobacco (+0.67 percentage points, pp), followed by services (+0.52 pp), non-energy industrial goods (+0.09 pp) and energy (-0.97 pp).

My colleague Zoe Wood explains how M&S’s sales have deteriorated under the lockdown:

In the six weeks to 9 May, clothing and home sales dropped 75%, while sales in Marks & Spencer’s food halls, excluding its restaurants, were down 4.6%.

The company said even though its website had continued to operate, demand for clothing in the initial weeks was very low, although it had begun to improve. Over the last three weeks online sales were 20% higher than last year.

Just in: UK house prices picked up in March, just before the pandemic forced the housing market to freeze.

The ONS says:

• UK average house prices increased by 2.1% over the year to March 2020, up from 2.0% in February 2020.
• Average house prices increased over the year in England to £248,000 (2.2%), Wales to £162,000 (1.1%), Scotland to £152,000 (1.5%) and Northern Ireland to £141,000 (3.8%).
• London’s average house prices increased by 4.7% over the year to March 2020; this is the largest 12-month growth London has seen since December 2016.

Here are more details of Marks & Spencer’s plan to ride out the pandemic, via the BBC’s Emma Simpson.

Here’s our news story on today’s inflation report:

Looking ahead… Tom Stevenson, investment director at Fidelity Personal Investing, warns that inflation could spike once the pandemic is over

He points out that the huge stimulus measures launched by central banks and governments could ultimately push up the cost of living:

“The drop in inflation to its lowest level since 2016 reflects a fall in petrol costs as well as the impact of lower end demand on factory gate prices.

“In the short term, disinflationary pressures will mount as the economy slows under lockdown, consumers become more cautious and companies start to prepare for life beyond furlough support by reducing their workforces. Further out, there is a growing fear that monetary and fiscal policy choices could lead to higher inflation, perhaps significantly so.

“Investors have started to prepare for a more inflationary environment by adding to their holdings of gold, the traditional hedge against rising prices. The precious metal is trading close to a seven-year high.”

But in the short-term, the trend is clearly downward:

High street chain Marks & Spencer has outlined how the lockdown will hurt its business – and it’s an alarming picture.

Under M&S’s Covid-19 scenario, the current government guidelines continue for a period of at least four months – resulting in a 70% drop in clothing and home sales in April-July, and a 20% drop in food sales (compared to previous forecasts).

M&S has already been hit by the pandemic, telling shareholders:

The Covid-19 crisis started to have an impact on the business in the first week of March with reductions in UK Clothing & Home sales which declined by 6.2% and 26.9% the week after.

With the onset of lockdown, the effect on sales, colleagues and customers in both businesses has been dramatic. Clothing sales at the low point dropped to 16% of their level a year ago

The firm also reported that costs and stock write downs for Covid-19 have cost £212.8m. This helped to push pre-tax profits down by a fifth in the last financial year, to £67.2m from £84.2m.

Retailers are expected to slash prices in the months ahead, to shift the huge stockpiles of unsold clothes which they’ve not been able to sell. That would continue the drop in clothing prices seen in April’s inflation report, keeping the cost of living lower.