UK DATA: CPI weightings will reduce impact of energy price rises on headline CPI
Looking at the main weight changes for the UK CPI (note that these weights are provisional for 2025 and will be further revised next month with next month's weight applying for the reset of 2025) there are a few takeaways. Services and core goods increase their weight by 1.09ppt and 0.29ppt respectively with falls in the weight of energy (1.08ppt decrease) and FAT (0.30ppt decrease). Falls in the weighting of energy will be particularly welcomed by the MPC - with utilities bills due to increase later this year having less of an impact on headline inflation and making the narrative to cut Bank Rate easier. However, we also note that holiday-related volatile components have increased in weight, which may lead to more volatility in the overall headline index.
- Services' weighting has increase 50.10% from 49.01% (a 1.09ppt increase).
- Energy's weighting has dropped from 7.18% to 6.09% (a 1.08ppt decrease).
- FAT (food, alcohol and tobacco) has seen its weighting marginally fall from 15.23% to 14.93% (0.30ppt decrease).
- Non-energy industrial goods have increased from 28.59% to 28.87% (0.29ppt increase).
- In terms of other notable changes, within services we group accommodation, package holidays and air fares together as volatile holiday-related services. Combined these have seen a weight increase of 0.22ppt: Package holidays have increased by 0.38ppt from 3.36% to 3.73%, air fares has increased in weight from 0.58% to 0.63% while hotels has fallen in weight by 0.20ppt from 2.62% to 2.42% (with other accommodation services remaining broadly unchanged).
- "Clothing and footwear" has increased by 0.34ppt to 6.20%
- "Recreational and cultural services" has seen its weight increase by 0.36ppt from 3.47% to 3.82%.
- "Restaurants and cafes" has seen its weight fall by 0.53ppt and hotels by 0.20ppt.
- "Furniture, furnishing and carpets" has seen its weight reduced by 0.36ppt to 2.18%.
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GERMAN DATA: German PPI Rises in December, ex-Energy Broadly Unchanged
German PPI rose to 0.8%% Y/Y in December, up from November's +0.1% Y/Y, but remains lower than consensus expectations of +1.1% Y/Y. Sequentially, PPI fell -0.1% M/M (vs +0.3% cons; +0.5% prior).
- Consistent with German CPI in December, energy deflation was less prominent than before, at -0.2% Y/Y (vs -2.4% November). This is the highest Y/Y rate since May 2023.
- That leaves ex-energy PPI broadly unchanged vs November, at 1.2% Y/Y - the rate has been hovering around that level for five months now.
- Looking at the non-energy categories, a deceleration in intermediate goods inflation stands out the most, at +0.1% Y/Y vs +0.4% in November. This comes as the trend of an acceleration in the category started to stall in September, and should, on the margin, be a positive sign regarding contained mid-term core goods CPI inflation in Germany.
- For further details see table.
GILTS: Flat Start, Syndication & Domestic Data Eyed This Week
Gilts little changed early today.
- Futures -12 at 91.55, trading in a 91.45-66 range.
- The structural trend condition in futures remains bearish, although the recent break above the 20-day EMA increases the threat to the overarching technical theme.
- Initial support and resistance at 90.68/91.96.
- Yields little changed to 1.5bp lower, front end outperforms.
- GBP STIRs still roughly in line with pre-gilt open levels, ~64bp of cuts priced through year-end.
- On the lookout for the syndicated tap of the 4.375% Jan-40 gilt. Bookrunners have indicated this will likely be tomorrow’s business, in line with our own expectation.
- Much of the weekend domestic headline flow centred on political posturing ahead of U.S. President Trump’s inauguration.
- That event dominates the macro calendar today.
- UK labour market data is due tomorrow, our full preview will be out later today, greater colour available in the pre-gilt open STIR bullet.
EURIBOR: Goldman Recommend ERM5/Z5 Flatteners
Goldman Sachs have recommended ERM5/Z5 flatteners, with an entry at -13.0, targeting a move to -30.0, with a stop set at -5.0.
- They think “the trimmed risk of 50bp cut odds is reasonable given the modest upside surprises to recent inflation data in Europe and expect terminal rate pricing in H225 to lead any further rally from here.”
