Danske Bank stays bullish on sterling following inflation report release

by Frankie Norman February 14, 2018, 18:06
Danske Bank stays bullish on sterling following inflation report release

The central bank's preferred gauge of inflation - a separate figure based on consumer purchases and issued by the Commerce Department - has mostly missed its 2 percent goal in the past five years.

After rising strongly since the middle of 2016, food price inflation now appears to be slowing.

Analysts have already made an assumption IIP to come lower in comparison with month-on-month performance, where the factory output jumped to 5-year high in November 2017.

The two main US stock indexes endured wild swings last week on concerns that inflation would spur higher interest rates more quickly, boosting borrowing costs for companies. The yield on the 10-year Treasury, a benchmark for mortgage rates, ticked up to 2.88 percent.

Interest rates have been historically low for years.

The Fed tracks a different index, the personal consumption expenditures price index excluding food and energy, which has consistently undershot the USA central bank's 2 percent target since mid-2012. No one's sticking their neck out among the forecasters. The increases were led by much higher clothing costs and more expensive auto insurance.

"The Fed's job now is to prevent the economy from overheating", said Gus Faucher, PNC chief economist.

"The dip in the CPI inflation was led by food and beverages, pan, tobacco and intoxicants, and fuel and light", said Aditi Nayar, principal economist at ICRA. "But surprises on inflation tend to be measured in basis points most of the time, and the inflation story is probably going to play out quite slowly", he wrote.

"Our long-held view of higher United Kingdom rates and sterling still stands, but in the short term the politics, stretched market positioning and the state of the global risk environment may provide headwinds against the pound", said Nomura currency strategist Jordan Rochester.

The increase in the core CPI brought the three-month annualized gain to 2.9 percent, the fastest since 2011, according to data compiled by Bloomberg.

Last week, the Reserve Bank of India (RBI) kept its key interest rate unchanged at 6 per cent for the third time in succession at its final bi-monthly monetary policy review of the fiscal, citing upside risks for inflation from rising global crude oil prices and other domestic factors.

Investors dumped stocks and bonds in the wake of the report. There are also retail sales for January at 8:30 a.m., another usually important number.

"The Pound has performed well during the early part of the year and that should feed into next month's reading, with many expecting inflation to start dipping significantly as we head into the spring".

United Kingdom inflation is starting to slip - but not as fast as many would like. 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.


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