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BoE: CPI inflation is likely to remain below 1% until the end of the year

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 4, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet - The BoE held rates steady at 0.5 per cent. The MPC member voted unanimously. The MPC has revised down its estimate of the level of potential supply broadly in line with the lower level of demand.

    Wage growth has been weaker than anticipated and labour costs are expected to rise a little less quickly than thought at the time of the November Inflation Report, contributing to a slower recovery in inflation. In part that reflects the MPC’s expectation that low realised inflation will continue to moderate the increase in wage pressure in the near term.

    The scale of recent commodity price falls means that CPI inflation is likely to remain below 1% until the end of the year. As the drags from energy and other imported goods unwind, however, domestic cost pressures are projected to build up sufficiently such that, conditioned on the path for Bank Rate implied by market interest rates, CPI inflation is likely to exceed the 2% target slightly at the two-year point and then rise further above it. This central projection for inflation is modestly below that of three months ago for much of the forecast period but broadly similar by the end. The MPC judges the risks to the central projection to be skewed a little to the downside in the near term, reflecting the possibility of greater persistence of low inflation.

    In December, twelve-month CPI inflation stood at 0.2%, almost 2 percentage points below the inflation target. Oil prices were more than a third lower, in sterling terms, than a year earlier. Together with muted growth in world prices, the appreciation of sterling since early 2013 has pulled down on import prices more broadly. Overall, these factors can explain the vast majority of the deviation of inflation from the target in December, and to an even greater extent than at the time of the November Inflation Report.
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