17 Feb 2015
UK seeing the right kind of deflation? – ING
FXStreet (Barcelona) - James Knightley, Senior Economist at ING, comments that today’s UK CPI might heighten concerns for deflation with UK inflation set to drop to 0.4% today with further falls expected in coming months.
Key Quotes
“today’s inflation data could heighten concerns in some minds that deflation is a risk. Headline CPI dropped to just 0.5% YoY in December and we, like the market, expect it to have fallen to just 0.4% in January.”
“The combination of falling food and fuel prices is the main issue thanks to the ongoing supermarket price war and the plunge in the oil price and this looks set to continue depressing CPI in the next few months. As a result, the BoE has warned about negative headline inflation readings with the February- May period looking the most likely as utility bill price cuts start feeding through.”
“Inflation expectations show there is little threat of “deflation fears” becoming entrenched so we doubt that there is the prospect of households delaying consumption in anticipation of lower prices.”
“With employment continuing to rise, wages starting to very gradually pick-up and the taxfree personal allowance increasing by £600 from April, it looks as though 2015 should be a positive environment for consumer spending. Indeed, real household disposable incomes could be growing by around 3% this year.”
“Consequently, domestic demand pressures could start to lift inflation pressures towards the end of the year and if oil prices respond further to shifts in the demand-supply balance we could see inflation rise more quickly than the BoE currently anticipate.”
“As such, we agree with MPC member Martin Weale’s assertion on Sunday that interest rates will likely rise “somewhat earlier than market participants currently expect”.”
“We look for the first hike to come in November, five months after the first Federal Reserve rate hike.”
Key Quotes
“today’s inflation data could heighten concerns in some minds that deflation is a risk. Headline CPI dropped to just 0.5% YoY in December and we, like the market, expect it to have fallen to just 0.4% in January.”
“The combination of falling food and fuel prices is the main issue thanks to the ongoing supermarket price war and the plunge in the oil price and this looks set to continue depressing CPI in the next few months. As a result, the BoE has warned about negative headline inflation readings with the February- May period looking the most likely as utility bill price cuts start feeding through.”
“Inflation expectations show there is little threat of “deflation fears” becoming entrenched so we doubt that there is the prospect of households delaying consumption in anticipation of lower prices.”
“With employment continuing to rise, wages starting to very gradually pick-up and the taxfree personal allowance increasing by £600 from April, it looks as though 2015 should be a positive environment for consumer spending. Indeed, real household disposable incomes could be growing by around 3% this year.”
“Consequently, domestic demand pressures could start to lift inflation pressures towards the end of the year and if oil prices respond further to shifts in the demand-supply balance we could see inflation rise more quickly than the BoE currently anticipate.”
“As such, we agree with MPC member Martin Weale’s assertion on Sunday that interest rates will likely rise “somewhat earlier than market participants currently expect”.”
“We look for the first hike to come in November, five months after the first Federal Reserve rate hike.”