In February, consumer prices surprised on the upside of expectations rising by 0.4% M/M, while an increase by 0.3% M/M was expected. Also the year-on-year figure came out higher than expected at 0.2% Y/Y against the forecasted flat outcome. Looking at the details, commodities rose by 0.9% M/M, while services showed a more moderate increase (0.1% M/M). The rise in commodities was led by a 8.3% M/M increase in gasoline, but also apparel (1.3% M/M), vehicles (0.5% M/M) and tobacco (0.7% M/M) rose significantly. Food prices however dropped by 0.1% M/M. Core CPI, excluding food and energy, as well surprised on the upside as it rose by 0.2% M/M to an annual 1.8% Y/Y. In the coming months however, inflation is expected to decline, but the deflation fears might have mitigated recently.
Other: Awful UK labour market report
In the UK, jobless claims rose by 138 400 in February to a total number of 1.39 million and clearly above the consensus estimate of 84 800. The January figure was significantly upwardly revised from 73 800 to 93 500. These data are simply awful as unemployment rose in February at the fastest pace since the series started in 1971. In January, the ILO unemployment rate came out in line with expectations at 6.5% (from 6.3%). Also remarkable was the development in average earnings including bonus which rose by only 1.8% in January (from 3.1% in December).
At its March meeting, the Bank of England’s Monetary Policy Committee decided to cut rates by 50 basis points to 0.50% and the Bank announced a programme of asset purchases. The Minutes revealed a unanimous vote to cut rates by 50 basis points, but announced that there were also arguments for making no further rate reduction. The arguments in favour of making a further reduction however outweighed the arguments against. After the rate decision, the Committee discussed further measures that were necessary in order to increase nominal spending growth to a rate consistent with meeting the inflation target in the medium term. The minutes revealed that there was a high degree of uncertainty over the appropriate scale of purchases, but the decision to finance £75 billion of asset purchases by the creation of central bank reserves was also unanimous. The minutes showed an aggressive Bank of England that was little concerned about the weakening currency.
