Airfare drive UK CPI to 11-month high in December

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 19, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Mumbai) - The ONS today reported an increase in UK’s CPI in December. CPI rose 0.2 per cent year on year in December, up from 0.1 per cent seen in November. The rate was the highest achieved since January 2015. Inflation was noted to be at an 11-month high in December supported by an increase in airfares. Month on month, CPI increased 0.1 per cent, matching estimates.

    Core consumer price inflation, which excludes changes in the price of energy, food, alcohol and tobacco, increased 1.4 per cent, marking an 11 month high.
    However, annual inflation for 2015 remained flat for the first time since 1950. Inflation had stood at 1.5 per cent in 2014. British inflation has hovered near zero since early 2015, far below the Bank of England's 2 per cent target. Today’s data justifies the central bank’s stance to hold rates. Dissatisfactory wage growth and weak global outlook hindering growth in the UK, the BoE has no pressure to move. It can wait longer before raising rates from record low of 0.5 per cent. The central bank is now expected to raise interest rates only in the third quarter of 2016.

    The increase in inflation can be attributed to a 26.8 per cent annual increase in airfares, which is the largest annual rise since 2011. Services price inflation increased 2.9 per cent on the year, marking the fastest pace of growth since September 2013. Factory gate prices however fell 1.2 per cent.

    The ONS also released figures for November house price inflation today. House price inflation data showed 7.7 per cent annual rise, up from 7.0 per cent in October, marking the biggest increase since March.

    Policy makers last week had opined that plunge in global oil prices to 12 year low would not be much of a drag on inflation and would actually boost growth given people would save on gas and petrol and can thus spend more.
    Reuters quoted Howard Archer, chief UK economist at IHS Global Insight who said there was little possibility that the BoE will raise rates before August 2016 as there is “increased probability that inflation will stay lower for longer"

    Pantheon Macroeconomics's Samuel Tombs said via Reuters "CPI inflation will continue to rise in early 2016, as the drag from lower oil prices continues to fade and food inflation begins to strengthen now that supermarkets have passed on all of the fall in wholesale prices.”
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