“The UK reported a 0.5% year-over-year increase in CPI. This was below the 0.7% consensus and is half the pace seen in November.”
“BOE Governor Carney has to write a letter to Chancellor of the Exchequer Osborne to explain the undershoot. Energy and food prices are the key drivers.”
“We note that the core rate actually ticked up from 1.2% to 1.3%. The December short-sterling futures firmed to test the contract high set last April at 99.32 (implied yield 68 bp) as the market all but gives up on the idea of a rate hike this year.”
“Sweden also reported December CPI figures. It was surprisingly firm at 0.2% on the month. The market had expected a 0.1% decline. The year-over-year rate did slip into more negative territory (-0.3% from -0.2%) but was not as low as had been feared/expected (-0.5%). The underlying rate did tick up to 0.2% from 0.0%, but caution is advised here. The underlying rate is calculating using a fixed mortgage interest rate rather than excluding food and energy.”
“The Swedish krona rallied on the news and is the strongest of the major currencies today, gaining 1% against the US dollar.”
“The Riksbank meets on February 12, and an adoption of aggressive action seems somewhat less likely now. It may still adjust its forward guidance, pushing out the timing of the first rate hike and perhaps lengthening some repo operations, but negative rates or bond purchases seems unlikely.”
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