United Kingdom inflation sticks at almost six-year high in January

Factory output rises to 7.1% in December 2017 manufacturing sector grows by 8.4

Housing inflation grew at 8.33 percent in January, as compared with 8.25 percent in December, while fuel inflation, which has seen an uptick in July, remained unchanged at 7.73 percent in December.

Inflation has been climbing steadily since the beginning of past year but many have predicted it has peaked at around 3%.

The Reserve Bank of India (RBI) last week kept interest rates unchanged and raised its March quarter CPI inflation forecast to 5.1 per cent. Within the food items, the inflation fell for vegetables to 26.97%, sugar and confectionery 2.85%, cereals and products 2.33% and fruits 6.24%. The Fed said in December that it anticipates three interest rate increases in 2018, and newly seated Fed Chair Jerome Powell hinted Tuesday that the central bank would not deviate from those plans going forward, so long as the market shows signs of continued growth.

Sterling rose 0.5% against the dollar to 1.39 USA dollars following the news.

Keeping a close eye on the Relative Strength Index (RSI) as it extends the bearish formation from earlier this year, with the former-resistance zone around 1.3690 (61.8% expansion) to 1.3700 (38.2% expansion) in focus as it largely lines up with trendline support.

Dr Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India (SBI), however, said, "Inflation for the Jan'18-Jun'18 period is likely to be on the higher side owing primarily to base effect (average inflation for Jan'17- Jun'17: 2.89%)".

"Inflation has been the missing piece in the puzzle for rate hikes over the past several months, which had led some members of the [Federal Open Market Committee] to dissent on rate hike decisions over the past year", said Leslie Preston, senior economist at TD. We have been waiting a number of years for this to happen.

Treasurys fell after the CPI report, with the yield on the 10-year note rising to its highest level since January 2014, on more proof that USA inflation is accelerating. British government bond prices fell in contrast to a rise in the price of German bunds.

"Inflation could fall away more sharply than expected between now and May", she says.

In short, the report should not be taken too seriously. "The bank's forecasts are based on a smooth Brexit transition, and you'd be forgiven for thinking that things might be bumpier, for a while at least".

"This adds further weight to the case for higher interest rates sooner rather than later".

Falling inflation will pave the way for a bit of a pick-up in growth this year, allowing the BoE to hike interest rates three times in 2018, more than markets expect, Paul Hollingsworth, an economist at Capital Economics, said.

Investors have been pricing in a good chance that rates would rise in May, with a second rise later this year, probably in November.



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