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UK Preview: CPI estimated to have increased 0.2 per cent in December

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

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - The UK's consumer price index (CPI) will be released today at 9.30 GMT. The CPI rate is a commonly used measure of inflation in the UK. CPI is expected to grow0.2 per cent in December year on year, up from 0.1 per cent growth seen in the earlier month. On a month-on-month comparison, CPI is estimated to come in at 0.1 per cent in December, after having stagnated in November.

    The current rate of inflation remains way below the central bank’s 2 per cent inflation target. The BoC had, considering the low inflation and poor wage growth decided to leave rate unchanged at record low level of 0.5 per cent. Going by the current scenario inflation cannot be expected to reach 1% until late in 2016.

    Research Team at Lloyds Bank also noted that the core inflation rate also likely firmed, registering a 1.2 per cent increase year on year. Core rate is calculated by excluding energy, food, alcohol and tobacco.

    A major worrying factor for the central banks these days is the sharp fall in oil prices. Oil has dropped below the $30 per barrel threshold raising panic in markets. With sanctions on Iran removed, markets expect more oil to be exported, adding to the already existent glut. The oil slump is here to stay for some time and it will continue to keep prices in check building up deflationary pressures. Research team at Lloyds Bank observed that forecourt fuel prices in December slipped 2.9%. Lower gas prices indicate retail energy tariffs will continue to remain low in the coming days.

    Since early 2009, the BoE has kept base rates close to 0.5% as the central bank is worried about the growing deflationary pressure in economy. It has shaped its monetary policy to avoid a possible recession. With wage growth staying unsatisfactory, the central bank has been forced to keep rates low so as to spur demand and boost consumer spending, hoping that this would eventually pusg up prices.
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