Stalling UK inflation eases pressure on Bank of England

Cornelia Mascio
Agosto 16, 2017

The consumer price index including owner occupiers' housing costs rose 2.6 percent annually in July, the same rate as in June.

Although the reading remains well above the Bank of England's target of 2 per cent, it was slightly lower than expected, as most economists had pencilled in a modest rise to 2.7 per cent. "Policy rates have likely plateaued for now, with room for rate cuts requiring a sharp downward drift in core inflation or growth slump in the second half of this fiscal", said Radhika Rao, group economist at DBS Bank.

Mumbai: Annual consumer price inflation picked up to 2.36 per cent in July from 1.54 per cent in June, as a decline in food prices slowed sharply, government data showed on Monday. Input prices for factories increased 6.5 percent on the year, compared with a 10 percent rate in June.

Similarly, prices of food articles rose massively by 2.15 per cent from a deceleration of (-) 3.47 per cent during June 2017 and a rise of eight per cent in July 2017. "Based on this anticipated trajectory, and the recent commentary by the Monetary Policy Committee, we see a low likelihood of further rate cuts in FY-18", Nayar said.

The inflation for clothing and footwear was steady at 4.22% in July 2017, while the CPI inflation of fuel and light increased to 4.86% in July 2017. Nevertheless, consumers continue to face a considerable squeeze on their purchasing power - there is little doubt that inflation of 2.6% in July will still have been clearly above earnings growth, which will likely be close to 2%. "As far as fuel is concerned, there has not been any significant movement in crude oil prices, so that wouldn't put any pressure in either direction", Mr. Srivastava said.

"Moderating inflation means less pressure on the bank to consider raising interest rates, and will allow the MPC to remove the sticking plaster of ultra-low interest rates very slowly indeed".

WPI inflation rose to 1.88% in July from just 0.9% in the previous month.

The CPI measure dropped unexpectedly to 2.6% in June, down from 2.9% in May. The market expects only a 0.1% increase in retail sales for July, the annual rate is expected to contract to 1.2% from 3%.

Petrol fell by 1.4p month on month to 113.9p per litre, while diesel slipped by 1.7p to 115.6p per litre.

On the other hand, India's current account deficit is expected to spike to $15-16 billion level in April-June, from the marginal $0.3 billion recorded in Q1 of 2016-17.

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