Philip Rush, Research Analyst at Nomura, suggests that the UK CPI inflation increased to 0.3% y-o-y in January, in line with the consensus, but disappointing our forecast while they see a meaningfully large move in September to above 1.0% before going above 2% in early 2017. Key Quotes “There were mixed headline surprises to the various inflation release areas for January. CPI inflation matched consensus expectations by rising to 0.3% y-o-y, while RPI inflation was a little disappointing in its rise to only 1.3% and producer prices fell by less than had been forecast. We had been slightly more bullish on the CPI (forecasting 0.4%), and at least in our case, the news was narrowly concentrated in transport. We prefer looking at the median of the monthly inflation rates of all the constituent parts of the CPI basket. Calculated from the raw non-seasonally adjusted data, a clear upward trend since January 2015 can be seen, with a spike higher in the latest release. The absolute rates are low, but that is because the more seasonal items being stripped out from this measure normally have a higher trend rate of inflation. Large further falls in oil prices at the turn of the year will mask the base effects from the previous year’s decline in oil prices and ensure energy continues to depress headline inflation. We expect only a small decline (less than 0.1pp) in the headline rate over the next couple of months before another rise in April. A significant break higher, potentially back above 1% y-o-y should then occur in September. Such a move after the Brexit referendum has passed, probably in favour of “remain”, should help motivate the MPC to raise rates soon after. We continue to forecast inflation breaching the target to the upside early in 2017.” For more information, read our latest forex news.