Inflation to moderate to 5% in Jan

Ivan Schwartz
February 14, 2018

Stocks on Wall Street opened lower before erasing losses.

Tuesday's CPI data showed downward pressure on inflation from a lesser increase in fuel prices than a year ago.

"Indeed Bank of England policymakers said last week they'll try and bring inflation back to target more quickly than previously expected, which means rates could rise faster and further than anticipated".

"The worry of the markets is not that inflation is becoming a big problem, .it is that the Fed is now forced to play catch up at the same time they are shrinking their balance sheet", said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Sterling languished around a three week low against the greenback on Monday with last week's equity market rout overshadowing the Bank of England's optimistic assessment of the United Kingdom economy.

Economists surveyed by The Wall Street Journal had expected CPI to rise by 0.4% and core prices to increase by 0.2%. Headline CPI rose by 0.5% and core CPI (minus food and energy) by 0.3%.

Delhi-based think tank National Council of Applied Economic Research (NCAER) in its 103rd Round of the Business Expectations Survey (BES) said the NCAER Business Confidence Index (N-BCI) rose 9.1% in January over October 2017 on a quarter-on-quarter (q-o-q) basis, after falling by 12.9% in October 2017.

However, the CPI was higher if compared with 3.17% of the corresponding month in the previous year. The S&P 500 fell 0.31 percent to 2,654.59 and the Nasdaq Composite slipped 0.29 percent to 6,993.05.

"In our view, inflation has now peaked". Industrial Production for December grows at 7.1% in comparison to last year's 2.4% for December.

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"Somewhat counterintuitively, this may make it easier for the MPC to hike interest rates, as it helps to ease the squeeze on consumers' real incomes, the largest constraint on spending growth at present, which should help the economy to pick up a bit of pace".

Results of the New York Fed poll also showed 39 percent of consumers felt their personal finances were in better shape than a year earlier, and 46 percent expected to be in better shape in a year, both marking the highest levels in data from 2013.

The FTSE struggled to make head way during Tuesday's session, as a stronger pound and a weaker start in the U.S., overshadowed strength in the United Kingdom mining sector.

Government data released on Monday also showed that retail inflation softened marginally at 5.07 per cent in January.

The Bank has revised up its expectation of GDP growth this year by 0.1 per cent to 1.8 per cent, and is comforted by the buoyancy of the global economy.

"There is undoubtedly more to come".

Despite the market's jitters, inflation isn't yet much of a threat to consumers. Other economists forecast that core prices won't reach that level until the end of the year, if at all.

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