Headline UK inflation data has come in better than expected at 1.6% vs 1.4% YoY and 0.5% MoM, the inflation target for the Bank of England remains at 2%. There is a continued worry about the pace at which inflation prices are rising, and with the lower pound since the EU referendum, and an OPEC deal on output pushing oil prices higher we can expect CPI to continue to move in the same direction.
According to Mark Carney’s forecasts inflation is likely to continue to rise over the Banks target at 2% and closer to the 3% within the next 18 months. Again this has a lot to do with Brexit and the outlook for the pound, however since the Hard Brexit line has been pretty much confirmed for Theresa May’s speech this morning we have seen the pound rally.
If you add that to Mr Carney’s comments from last week saying that Brexit risks was subsiding then we could find that the inflation outlook could well not be as aggressive as first thought. The December figures show are the highest level for a number of months and have been pushed higher by a rise in air fare prices as well as food prices over the holiday season.
Brexit is of course a huge sticking point for inflation prices, and this number shows that currently the BoE predictions of much faster inflation growth are in line. However such is the uncertainty over Brexit and the reaction of the pound that we could well see the situation change very quickly. Add to that the political nature of the oil prices, and it shows the major movers of the CPI reading are far from certain in their current positions.
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