United Kingdom inflation still at 3% despite fall in food prices

Jon Howard
February 14, 2018

"Inflation's now been above target for 12 straight months".

Wall Street is hoping consumer inflation doesn't come in high in Wednesday report, as that will set off inflation alarms and push rates up again.

The Federal Open Market Committee announced in late January that they anticipates further rate increases in 2018, causing investors to believe the government will raise interest rates more than two times in 2018.

Investors dumped stocks and bonds in the wake of the report.

The rate of inflation remained steady in January, as weaker price rises for fuel were offset by expensive tickets to family attractions.

"The IIP growth in December was mainly on account of uptick in manufacturing sector which constitutes 77.63 per cent of the index", the data released by the Central Statistics Office (CSO) showed, adding that it also grew by 8.4 per cent during the month as compared to just 0.6 per cent in December 2016. Food prices rose a moderate 0.2%.

Food price inflation for urban areas stood at 4.06 per cent in January against 4.71 per cent in December 2017 and -0.31 per cent in January 2017. The January CPI is the first inflation-specific data point since the February 2 jobs report that showed the fastest rise in hourly wage growth since 2009.

This trend line doesn't look too scary, but the early 2017 trend of declining inflation has definitely ended.

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Brettell also noted that it now appears that the next interest rate increase "may well happen in May". This is 0.45 per cent points lower than 13.46 per cent recorded in December 2017. That broke a three-month string of flat or negative non-seasonally adjusted inflation. Here are the new March 2018 inflation indexes for all TIPS.

As per use-based classification, the growth rates in December 2017 over December 2016 are 3.7 per cent in primary goods, 6.2 per cent in intermediate goods and 6.7 per cent in infrastructure/construction goods.

That's shy of the central bank's target of 2%.

The Sterling traded higher against the us dollar on Tuesday on news of the British inflation rate rallying with the pound recording a high of 1.3900 from trading at around 1.3883 from the earlier trading session. Lots to think about.

But in time for half-term, a rash of oil companies have now slashed prices - so quite a long tail to the price cuts.

Those include catering, where inflation edged up to 3.1pc, transport services where it hit 5.2pc, and recreational services including zoos where inflation shot up to 5.1pc. Higher interest rates make it more expensive for consumers and businesses to borrow and spend and could slow growth. "Given that much of the recreation category (things like computers and TVs) is fairly sterling-sensitive, we wouldn't expect this resilience to last". I am not receiving compensation for it (other than from Seeking Alpha).

I wrote this article myself, and it expresses my own opinions.

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