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Inflation eases slightly to 5.07% in January

Inflation eases slightly to 5.07% in January

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United Kingdom inflation in January was higher that the market expected and keeps the prospect of a Bank of England interest rate hike in play over the coming months.

This morning the Office of National Statistics confirmed the Consumer Prices Index (CPI) 12-month rate was 3.0% in January, unchanged from December.

"Over the coming months, as the fading impact of previous sterling weakness unwinds, domestic inflation pressures are expected to build, ensuring that the return in CPI towards its 2% target is expected to be very slow", he said.

"House price growth increased slightly, driven by rises in Scotland and the South West".

It means prices are still rising faster than wages, according to the latest data, and have been for a full 12 months.

IHS Markit's Chris Williamson said: "While the stickiness of inflation will make for itch-trigger fingers among rate-setters, the signs of the economy faltering faltering suggest there's a risk of a higher interest rate exacerbating a nascent slowdown".

Although it thinks the post-Brexit fall in sterling, as a cause of higher prices, is pretty much over now it is not happy that inflation will remain above target.

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ONS senior statistician James Tucker said: 'Headline inflation was unchanged with petrol prices rising by less than this time past year.

The main upward effect on prices came from a range of recreational and cultural goods and services, in particular, admissions to attractions such as zoos and gardens, for which prices fell by less than they did a year ago. With our pay packets lagging price rises, we're feeling progressively poorer as each month rolls by and this inevitably means we'll spend less.

Food price inflation also appeared to be slowing - having risen strongly since mid-2016 - edging down 0.1 per cent on the month amid larger falls in the cost of meat, oils, milk, cheese and eggs.

Sterling rose 0.5% against the dollar to 1.39 USA dollars following the news.

The Euro has also traded 0.11% lower against the British pound prior to the release of the inflation data while the greenback was mostly steady due to the $1 trillion infrastructure plan outlook from U.S. President Donald Trump.

"Non-oil, non-gold imports (proxy for domestic consumption) is expected to have stayed strong at 24.6 per cent versus 12.8 per cent as domestic demand indicators such as auto and two-wheeler sales growth was strong in the month", it added.

The Bank of England monetary policy committee warned last week that, partly due to stronger worldwide economic demand, United Kingdom rates would have to rise sooner and to a "greater extent" than previously anticipated. "He has been known for raising several false alarms in the past, but it looks like the Bank of England's warning last week that interest rates are set to rise is the real deal".

Indicating economic revival, India's industrial production grew by 7.1 per cent in December and inflation fell from 17-month high to 5.07 percent in January easing pressure on RBI to increase interest rates.


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