December CPI remains unchanged
15 January 2008
The British Consumer Price Index held steady for a third consecutive month in a row, at 2.1% y/y as expected in December. The monthly inflation figure was published at 0.6% m/m; the largest monthly gain for 12 months, largely fuelled by rising food prices and limited by falling utility bills. However, as has been well publicised over the past couple of weeks, utility bills are set for a hike this winter adding further risk to the upside into 2008.
The data released this morning had been made readily available to policymakers ahead of last week’s interest rate announcement, where rates were kept on hold at 5.5%. The Bank of England will have been reassured to discover that the core inflation rate remained steady at 1.4%y/y coupled with the Retail Price Index measure of inflation easing to 4.0% in December; which should ease pressures on wage demands into 2008.
The news came amid the Producer Price Inflation (PPI) data released yesterday, indicating fuel and food costs lead the price of goods leaving factories increase at their fastest pace for 16 years. Prices leapt by 0.5% m/m in December; bringing the annual rate to 5.0% y/y as inflated commodity prices filter through to the wider economy.
The nature of both inflationary releases probably contributed to the Bank of England’s reluctance to cut interest rates for a second consecutive month in January. Nevertheless, we expect the MPC to lower interest rates in February, when the Bank updates its economic growth and inflation forecasts.