Today from the UK; we see that deflation risks have eased as the CPI and RPI were released, showing that they came in higher than expectations due to higher fuel prices and a rise in air ticket costs, although prices slowed their decline and rose for the first time since eight months; however, the general price levels remains pressured from the recession in the nation.
The Office for National Statistics (ONS) released its consumer price index for the month of October at 0.2%, higher than both the projected 0.1% and previous flat reading; while on the year it rose to 1.5% from 1.1%, which is better than the forecasted reading of 1.4 percent.
By breaking down this data into mroe detail, we see that industrial goods yearly rose to a flat reading from the prior -1.0%; energy prices improved to -4.0% from -6.5%; while non-energy industrial climbed to 1.1% from 0.6%, which were reasons behind inflation not resuming its decline.
Core CPI, which excludes food and energy prices for the year ending in October, came in at 1.8% inline with predicted reading and higher than the preceding reading of 1.7%.
Deflation risks were triggered in the nation due to industries reducing prices, as a way to lure consumers and shore up profits that have been crippled from the ongoing global recession; since producers were forced to cut prices, thus heavily weighing on general prices levels.
In addition, prices in the nation were a result of dampened demand due to the fragile job market, which had also been led from companies doing all they could to cut expenses, since production output was already weak.
The improvement in inflation rates was also caused by the Bank of England buying gilts worth 200 billion pounds, which were aimed at providing tranquility in the financial and banking system, next to halting the decline in prices.
Also released was RPI for the month of October at 0.3%; lower than the previous 0.4%, which is higher than the expected 0.1%. While on the year, it improved to -0.8% from -1.4% and better than the projected -1.0%.
Looking more closely into the RPI data, we see that rent prices fell to 2.0% from 2.1% on the year, while utilities dipped to -2.0% from 4.3%; where the incline in prices is a good indicator for consumers, since they currently have more money to be used towards spending. Yet this does not necessarily mean that they are going to be higher spending levels, since they might be used towards savings since Britons are worried about the UK's outlook.
RPI, excluding mortgage installment payments for the year ending in October, came in at 1.9%; higher than both the previous and predicted readings of 1.3% and 1.8% respectively.
BoE policy maker, Andrew Sentance, stated that they are worried about inflation on the long run from the extension of the APF program, continuing with the stimulus measures. Sentance believes that improvement is taking place in the economy as unemployment is slowing the pace of rise, while business and consumer confidence levels are rising, but at a weaker rate.
Governor of the BoE, Mervyn King, stated last week that he has an "open mind" about adding more to the current 200 billion pounds, thus providing us with evidence that the economic conditions of the UK are stressed; while at the same time arouses fears of inflation on the long run.
