UK inflation hits 17-month high

BBC News

UK inflation accelerated again in April to hit its highest rate in 17 months, official figures show.

On the Consumer Prices Index (CPI) measure, inflation hit 3.7% - well above the target of 2% and the highest rate since November 2008.

On the Retail Prices Index (RPI) measure, which includes housing costs, inflation was up to 5.3% - its highest rate in 19 years

The RPI measure is commonly used to decide pay rises or pension payments.

The Office for National Statistics (ONS) said food prices in particular had seen sharp rises.

The cost of food rose by 2.6%, the ONS said, thanks largely to rising transport costs over the last 12 months.

Fuel costs have increased by more than 25% in that time, the ONS said.

Last month's disruption caused by volcanic ash had little impact on prices, however.

Higher duty on alcohol and cigarettes introduced in April's Budget added to inflation in April, the ONS added, and clothes prices also rose.

'Downward pressure'

Bank of England governor Mervyn King has written a letter of explanation to the new Chancellor, George Osborne, as the official CPI measure remains more than one percentage point above the 2% target.

Earlier this month, Mr King said he expected inflation to be higher in the coming months than previously forecast, but insisted that it would slow to below the 2% target before the end of the year.

In his letter, the governor said inflation had accelerated significantly since September last year.

He blamed rising fuel prices, the rise in VAT and the fall in the value of the pound for the rising trend.

But he warned that these temporary factors were "masking the downward pressure on inflation from the substantial margin of spare capacity in the economy".

"If the recovery continues as expected, that will gradually erode the slack in the economy, bringing inflation back to target," Mr King added.

In his letter to Mr King, Mr Osborne said he noted that the Bank's view was that the "current elevated rate of inflation is expected to be temporary".

"I am sure that you will remain vigilant towards any upside risks to inflation," he added.

'Peak' inflation
Continue reading the main story If the recovery continues as expected, that will gradually erode the slack in the economy, bringing inflation back to target
Mervyn King

Governor of the Bank of England

Mervyn King's letter to Chancellor George Osborne

George Osborne's reply to Mervyn King

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The Bank of England's key interest rate remains at a record low of 0.5%, and this rate is unlikely to rise soon according to economists.

"We do not expect the Bank of England to increase interest rates this year in response to what is a short-term pick up in inflation," said Hetal Mehta, senior economic adviser to the Ernst & Young Item Club.

Howard Archer, chief economist at IHS Global Insight, said he expected inflation to begin falling again immediately.

"April's consumer price inflation rate of 3.7% should mark the peak," he said.

"Inflation is expected to start heading down in the near term as temporary upward pressures start to unwind."

Low interest rates are likely to continue to frustrate savers.

"Savers have been having a rough ride thanks to a combination of ultra low rates and rising inflation," commented Andrew Hagger from Moneynet.co.uk.

But he added that a small number of savings accounts offering interest rates of up to 5% were still available

Euro drops to new four-year low against US dollar

The euro has plummeted against the US dollar, falling below $1.22 for the first time since April 2006.

The eurozone's single currency fell more than 1.7% in afternoon trading in New York, to $1.216, before rallying.

The decline came after Germany announced plans to ban naked short-selling of shares from midnight local time (2200 GMT).

The single currency dropped by more than 2% against the yen.

Traders fear that the austerity measures being put in place in many eurozone countries will hit growth.

Despite the huge sums of money pledged in support for eurozone countries, severe measures are needed to cut budget deficits and debt.

The German government's ban will apply to the country's 10 most important financial institutions, and aims to stop the short-selling of euro government bonds.

Short-sellers usually borrow shares, sell them, then buy them back when the stock falls and return them to the lender, keeping the difference in price.

"Naked" short selling is when sellers do not even borrow the shares

PC sales spike drives HP profit growth

By Chavon Sutton

Hewlett-Packard, the world's largest technology company, used its heft to push sales and income higher last quarter as both consumers and businesses upped their spending on HP's computers and printers.

HP (HPQ, Fortune 500)'s net income rose 28% in its second fiscal quarter, ended April 30, to $2.2 billion, or 91 cents per share. That's up from $1.7 billion a year ago.

The results excluded 18 cents per share for charges related to recent acquisitions. Without the charges, HP (HPQ, Fortune 500) said it earned $1.09 a share.

Analysts polled by Thomson Reuters, whose estimates typically exclude one-time charges, expected $1.05 per share.

Sales rose 13% to $30.8 billion, from $27.4 billion during the same period last year, beating analysts' forecast of $29.8 billion. The big growth came in HP's PC division, where sales rose 21% to nearly $10 billion.

"We've built the best portfolio in the industry, and our customers are responding," Mark Hurd, HP's chairman and chief executive officer, said in a prepared statement.

The company boosted its full-year outlook for the second straight quarter. HP expects earnings per share in the $4.45 to $4.50 range, up from its previous forecast of $4.37 to $4.44. It also lifted its sales forecast.

The raised outlook came as a surprise to analysts, who expected the company to temper its guidance based on pressures from currency fluctuations and economic weakness in Europe, where HP does around a third of its sales.

"Everyone expected them to guide down their revenue outlook, but you haven't seen that in these numbers," said Jane Snorek, a technology analyst at First American Fund Advisors.

In a conference call following the earnings release, HP chief financial officer Cathie Lesjak told analysts that the effects on HP of a weak euro would be "much more muted than you might believe," and have been accounted for in the company's forecast.

Broad-based growth

Consumer and commercial spending on computers and printers, which comprise about half of HP's sales, continues to climb. The company saw a 20% rise in year-over-year unit sales for its PCs and a 9% increase in printer shipments.

HP's sales rose in every unit except software, where revenue dipped slightly compared to last year. But analysts were generally pleased with the results, and HP's stock rose 2.5% in after-market trading.

"Strength was pretty broad-based. They're obviously landing big deals," Snorek said. "This tells me that business activity is picking up."

In recent months, HP has been on a buying spree. The company in November announced plans to buy 3Com (COMS), a networking gear manufacturer, for $2.7 billion. The deal closed April 12.

In April, HP announced that it would buy troubled smart phone maker Palm for $1.2 billion. But Mark Hurd was quick to cast the move as "not a smart phone play" -- what HP is really after is Palm's intellectual property, Hurd told analysts on Tuesday's call. Owning Palm will better position HP to take advantage of opportunities in the mobile technology market, he said.

The industry is waiting eagerly to see what HP will do with its new prize. With Apple's iPad blazing a trail through the tablet market, analysts expect a counter-move from HP. Will HP scrap its moribund current tablet, which uses the Microsoft Windows 7 operating system, for another that features Palm's technology?

Hurd offered few hints. HP will be a "participant" in the tablet market, but its "extremely important" relationship with Microsoft won't be threatened, he said.

HP's main rival in the personal computer market, Dell (DELL, Fortune 500), reports its quarterly earnings Thursday.

Buffett sells more Moody's

Berkshire Hathaway cut its stake in rating agency Moody's for the third straight quarter, according to a regulatory filing.

But other big investors have been buying the beleaguered rating agency, whose shares have fallen 19% this year.

Berkshire (BRKA), run by billionaire investor Warren Buffett, sold a million shares of the New York-based company in the first quarter ended March 31. Berkshire remains Moody's (MCO) biggest single investor with a 31 million-share stake worth $663 million at quarter-end.

Berkshire also sold some shares of Kraft (KFT), the food company with which Buffett, right, had a clash over how the firm sought to pay for its acquisition of the Cadbury candy giant. Berkshire cut its Kraft stake by almost a quarter, to 106 million shares.

With the latest round of sales, Berkshire has cut its Moody's holdings by a third since last summer. The move comes at a time when the rating agencies are under fire for their role in the housing bubble and facing regulatory curbs on what was their fastest-growing business.

The timing of some of Berkshire's sales has raised some eyebrows in some quarters. Berkshire sold shares the day Moody's received notice from the Securities and Exchange Commission that it could face an enforcement action over its failure to enforce its rating policies.

But Berkshire, which has held shares of Moody's and its predecessor company for more than a decade, has been paring back with some regularity for the past year (see chart below).

Despite the headaches, Buffett said at Berkshire's annual meeting this month that he believes Moody's and its rival Standard & Poor's have "incredibly wonderful businesses," thanks to the continuing lack of competition. Wall Street analysts estimate that Moody's and S&P, a unit of McGraw-Hill (MHP), control 95% of the business of rating securitized bonds, for instance.

It seems that many big holders of Moody's stock are following Buffett's words rather than his deeds. Three of the firm's top 10 shareholders added to their positions in the first quarter, according to data compiled by Lionshares.com.

Capital World Investors, the third-biggest Moody's holder with a 10% stake, bought 4.7 million shares in the latest quarter. No. 4 shareholder Fidelity, which holds 9% of Moody's, added a million shares. The biggest buyer, though, was No. 10 investor Invesco, which bought almost all its 6 million shares during the period.

Researcher Calls Interphone Study 'Biased'

Posted by: Olga Kharif

There’s no link between cell phone use and occurrence of some types of cancer, according to the world’s largest study examining the subject that came out on May 17. “An increased risk of brain cancer is not established from the data,” Christopher Wild, director of International Agency for Research on Cancer that coordinated the Interphone study, said in a statement.

That doesn’t mean that cell-phone use is safe, said Joel Moskowitz, director of Center for Family and Community Health at the University of California, Berkeley. In a May 16 paper, he argued the study and conclusions that have been drawn from it may be “biased.” “Based upon… analysis by the Interphone investigators, cell phone use may increase gliomas” — a type of a brain tumor — “by 12,000 to 21,000 cases per year in the U.S.,” he argues.

The Interphone study indicates that people who’ve used cell phones for at least 1,640 hours face a 40% higher risk of developing a glioma, which is a type of a brain tumor, he wrote. “… the average user in the U.S. today could fall into this high risk use category after about 13 years of use,” Moskowitz said.

The study followed cell-phone users from 13 countries, not including the U.S. It mostly collected data on cell phone usage between years 2000 and 2004, when people didn’t use their cell phones as much as they do today. An average study participant talked on the phone for two to 2-1/2 hours a month.

Today, though, the average U.S. cell phone user talks as much in a week, Moskowitz wrote. That said, more people nowadays use Bluetooth and wired headsets. And many users, particularly teens, often text instead of calling their friends.

Europe to Help Russia Modernize Economy

By Andrew Rettman

Brussels and Moscow are racing to devise a plan by the end of May for how the EU can help Russia develop its economy beyond energy and natural resources

The upcoming EU-Russia summit is to see the launch of a new initiative designed to help bring Russia's petro-dominated economy into the modern age.

The "Partnership for Modernisation" began as a conversation between European Commission chief Jose Manuel Barroso and Russian President Dmitry Medvedev at the last EU-Russia summit in November. The two sides are now racing against the clock to agree a joint communiqué for the top-level meeting in Rostov-on-Don on 31 May.

The EU commission in an informal paper last year put forward a 10-point agenda for the scheme. The main points include: ensuring the rule of law; increasing foreign investment; enhancing trade; integrating markets; creating a greener economy; boosting scientific research and support for NGOs.

The Commission wants to see "first concrete results" already in 2010 and is willing to put a modest sum of money into the pot. It aims to use existing EU-Russia diplomatic structures to implement the project, rather than creating new bodies.

The Kremlin in the run-up to Rostov-on-Don put some flesh on the commission's proposal in a three page "Memorandum on key areas of the Partnership for Modernisation" – a paper obtained by EUobserver.

The Russian memo underlines that the scheme should not be seen as a form of EU patronage, saying: "It is based on principles of equality and mutual benefit."

But it contains a wish-list of "flagship projects" which would lead to a transfer of high-end technology from EU companies to Russian firms, straying into areas with military applications.

The list includes: bio-technology; space technology; nano-technology; telecommunications; microelectronics; supercomputers and aircraft engineering. A large part is devoted to energy, covering: energy efficiency; nuclear technology; mineral resources extraction; alternative fuel research and oil and gas processing.

It envisages "a joint foundation for commercial introduction of research" and speaks of the "speedy conclusion of negotiations on Russia's WTO accession."

The memo proposes new legal instruments to tackle corruption and money laundering. And it calls for talks on how "to exclude possible damage to Russian investors on the EU energy market caused by the 'Third Energy Package'," a recent EU law which complicates attempts by Russian energy firm Gazprom (OGZPY) to buy up EU competitors.

An EU diplomat said the union is mainly interested in improving the rule of law in Russia, energy efficiency and the environment.

"Let's be frank. It's a bit of a one-way transfer in the end. Of course, it's they who will be the recipients. We're not naive. But it is in our interest that Russia modernises," the contact said. "We can't say all EU countries are fully modernised either. I don't know to what extent we can learn from Russia. But we don't have all the answers," the source added.

Confusion over WTO

Russia's leading EU trade partners – the UK, Germany and France – as well as former Communist EU countries all back the scheme. But there is worry it could push democracy and human rights down the agenda.

The EU is also sceptical about Russian talk on free trade. At the same time as calling for speedy WTO accession, Moscow is promoting a customs union with Belarus and Kazakhstan which would seriously delay WTO entry. It has not budged an inch on anti-EU tariffs on timber exports and fees for trans-Siberian overflights in the past three years of talks.

The Kremlin's break-up of the Yukos oil firm in 2003, involving an exotic mix of FSB agents, political clans and stolen billions, set the scene for doing business in Russia under Vladimir Putin. Mr Medvedev has made a number of pro-reform speeches. But during his presidency bankers and human rights campaigners have been shot dead in Moscow with apparent impunity.

It remains to be seen whether private-sector European firms will get behind the Partnership for Modernisation.

"The question is, will they try to pull in Western companies, take their technology and then kick them out, as is happening in China?" Keith Smith, a former US ambassador to Estonia turned analyst at the Centre for Strategic and International Studies in Washington, said.

Apple, RIM Overtake Motorola in Phone Unit Sales

By Hugo Miller Bloomerg

Apple Inc.’s iPhone and Research In Motion Ltd.’s BlackBerry overtook Motorola Inc. handsets in global unit sales in the first quarter, helped by increasing demand for devices with video and Internet features.

RIM’s market share climbed to 3.6 percent and Apple’s rose to 3.04 percent, El Segundo, California-based research firm ISuppli said today. The two companies were the only ones to increase shipments from the fourth quarter. Motorola’s market share shrank to 3 percent from 3.6 percent.

Sales of smartphones like the iPhone and BlackBerry, which allow users to surf the Web, play video and send e-mail, are outpacing the market for more basic phones used mainly for calls and text messages. Apple and Waterloo, Ontario-based RIM are the only companies in the top 10 that exclusively make smartphones, according to ISuppli.

“The smartphone is reshaping the competitive landscape of the wireless business,” Tina Teng, an ISuppli analyst, said in the report.

Finland’s Nokia Oyj remains the world’s biggest mobile- phone maker, with a 37.4 percent share last quarter. South Korea’s Samsung Electronics Co. was No. 2 with 22.3 percent and LG Electronics Inc. No. 3 with 9.4 percent.

Sony Ericsson Mobile Communications Ltd. took the fourth spot, followed by RIM and Apple.

Motorola, North America’s largest handset maker by unit sales until last quarter, cut its range of basic models as demand slumped. The Schaumburg, Illinois-based company is rebuilding its handset business around smartphones based on Google Inc.’s Android platform.

RIM rose 9 cents to $66.25 at 4 p.m. New York time on the Nasdaq Stock Market. Apple, based in Cupertino, California, climbed 40 cents to $254.22. Motorola added 6 cents to $6.85 in New York Stock Exchange composite trading.