UK CPI rises on surging air and sea fares - ING

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 (Delhi) – James Knightley, Senior Economist at ING, notes that the December UK headline consumer price inflation has come in at 0.2%YoY, up from 0.1% in November and is the fastest rate of price increase since January 2015.

    Key Quotes

    “Meanwhile the core rate of inflation (excluding food and fuel) rose 1.4%YoY versus a consensus forecast of 1.2%. This was also the highest inflation rate since January last year.

    The details show air fares contributed positively (up 26.8%YoY! Sea fares were up 20.3%) – note that the transportation component was the only one of 12 CPI sub components to actually increase. It showed transport prices swinging from -2.1%YoY to -0.2%.

    However, food prices saw intensifying deflation, as did clothing, furniture, recreation and culture. Therefore, today’s pick-up in inflation (particularly core) can’t really be viewed as suggesting the story regarding inflation has changed much. After all, transportation prices will fall back again next month given what has happened to fuel costs.

    Given that inflation remains so soft and with tomorrow’s UK labour report set to show a further slowing in the pace of wage growth, the Bank of England is under no pressure to respond. Moreover, the Brexit uncertainty poses clear risks for growth, particularly through the investment and hiring channels, which will more than offset concerns about inflation risks from sterling’s recent falls.

    As such we see little prospect of BoE action ahead of the EU referendum, which seems set for June/July. We continue to have November as the probable start point for UK rate hikes, assuming the UK votes to remain an EU member state.”
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