UK Inflation Beats Expectations - ING
James Smith,Economist at ING, suggests that the core inflation (at 1.5%)
is creeping closer to target, which alongside an expected boost from
higher import prices this year, will put pressure on the BoE to hike
rates should the UK vote to remain in the EU.
Key Quotes
“The
UK’s March inflation data provided a positive surprise, with both the
headline and core rates of CPI coming in above consensus. The headline
rate ticked up to 0.5% YoY, led by another large increase (23% MoM!) in
airfares. This is most likely attributable to this year’s Easter break
taking place in March (as opposed to April), which we would expect to
work in the opposite direction next month.
Ultimately, this is
just noise and the decline in food prices during March (-0.6 MoM) was
more interesting. As the supermarket price war (which has helped drive
down food prices by 5.5% since early 2014) has showed signs of losing
steam, we expect food prices to act as less of a deflationary influence
over the coming months.
Ultimately, in advance of this week’s
Bank of England meeting, the key focus for the MPC is still the
forthcoming UK referendum in June. However, the pound has depreciated by
around 11% since mid-November and this should start to push up the cost
of imported products over the coming months – something which should be
increasingly noticeable in the second half of this year.
If the
UK votes to remain in the EU, then these medium term inflation
pressures will be a key determinant of when the BoE will hike interest
rates. As today’s data showed, core inflation (now at 1.5%) is creeping
closer to the 2% target and with further pass-through from higher import
prices expected, we remain comfortable with our call for a November
rate hike (assuming no UK EU exit).”
(Market News Provided by FXstreet)
