ALEX BRUMMER: Inflation takes a breather… but for how long?

Rishi Sunak’s best hope of emerging from the mire of union disputes is a dramatic drop in inflation.

If the government can keep talking and delay reaching hasty settlements, the cost-of-living crisis could melt away.

The brief period of double-digit inflation, which led public sector unions to rebel against settlements recommended by independent wage-monitoring agencies, could prove an aberration.

Therefore, one-off cash payments, to offset the higher bills in 2022, would be a much better outcome for public finances.

Locking in double-digit deals and future pension commitments is not a wise option.

Omens from across the Atlantic look positive. Consumer prices in the US fell in December for the first time in two and a half years.

Inflation fell to 6.5 percent, the smallest increase since October 2021.

Conditions in Britain are not the same due to US energy self-sufficiency.

Nevertheless, there is some comfort in the data with fears receding in the US of a 1970s/1980s wage price spiral.

That does not mean that the Federal Reserve, the American central bank, will reach the foot of the interest rate accelerator.

After all, prices are well above the Fed’s inflation target of 2 percent, a huge amount of money is still sloshing through the financial system as a result of quantitative easing, and the federal government is eager to keep wage agreements in check.

Among the biggest contributors to declining US inflation are falling gas prices at the pump and a decline in used car and truck sales. The semiconductor shortages, which have crippled the new car market, are disappearing.

Britain should also benefit from falling petrol and wholesale gas prices.

The ‘rocket and feather’ effect, whereby declining prices are collected instead of passed on, works against this.

Nevertheless, Europe’s mild winter and the clever ways energy-importing countries have adapted to the effects of the war in Ukraine will help.

There is little evidence from the excellent seasonal sales in the High Street that the Bank of England’s efforts to curb demand by raising interest rates from emergency levels of 0.1% to the current 3.5% are having much effect contributed to suppressing the impulse to spend money. .

The housing market has softened, but that’s also due to Liz Truss’s “idiot premium,” which dramatically impacted the cost of fixed-rate mortgages.

Governor Andrew Bailey and the Bank now have not one target, but two.

There is Rishi Sunak’s commitment to halve the consumer price index (CPI) this year from the current 10.7 percent, which seems achievable. Reaching the 2 percent, without further significant rate increases, will be more difficult.

Archie delivers

Loyal Marks & Spencer investors have long been waiting for a turnaround. If the Christmas trading period offers something to hold on to, it is on its way back.

Changes envisioned by chairman Archie Norman and implemented by former boss Steve Rowe and now Stuart Machin appear to be paying off.

Food has always been a big asset, but with competitor Waitrose in the lead, M&S outperformed the market in terms of volume and value over Christmas.

M&S is a particular seasonal favorite with its high-quality turkeys, quality sparkling wines and luxury sweet collections.

More surprising is the enthusiasm for M&S clothing, which has long been seen as sleazy, out of step and couldn’t match Zara and other rivals.

A focus on bringing in brands such as Jaeger and the extensive store rotations from older high streets to high-end malls is working.

M&S shares, which were once the benchmark for UK retail, continue to languish, but rose 1.3 percent to 145.3 pence.

With a market value of £2.84 billion and a price-to-earnings ratio of less than ten, there is still work to be done to convince doubters. Despite the strong headwind, 2023 could be that year.

Virtue signalling

Japanese workers have had a torrid time in recent decades, hit by cost cutting and deflation. They have shown great selflessness in the national interest.

For those who are patient, rewards will eventually come. Fashion group Fast Retailing, owner of Uniqlo, is raising the bar by raising wages by up to 40 percent to align its lackluster pay with that of foreign competitors.

Mick Lynch, eat your heart out.