UK: Inflating the risks? – ING

By FXStreet James Knightley, Senior Economist at ING, suggests that the UK headline inflation is likely to stay low in the near term, but with sterling having plunged and commodity prices nudging higher, imported inflation could rise sharply in 2H16.

Key Quotes

“This week’s UK inflation data is unlikely to rock the boat too much. We look for a modest tick higher in the annual rate of inflation to 0.4% YoY from 0.3% in February. On the one hand, higher petrol pump prices will exert an upward influence, but we also have to remember that utility bill prices were cut last month. Then we have to consider the impact of the 11% fall in sterling on a trade-weighted basis since mid-November, which is likely to push up the cost of imported products and resources. Furthermore, we see evidence to suggest that the effects of the supermarket price war are waning in terms of the deflationary influence on food prices. Producer price inflation is also becoming less deflationary, which suggests that the gap between service sector inflation (+2.5% YoY) and goods price inflation (-1.5% YoY) is likely to narrow.

A complicating factor is the Brexit vote – the referendum on ongoing EU membership that will be …read more

Source:: FX Street