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Bank of England's (BOE), only vocal hawk of 2015, explained yesterday, why he stopped dissenting in the bank's last monetary policy meeting. Main theme was, wage growth, which has been a key component behind his expectations of rising inflation failed to show up materially.
One key comment stand out and caught our attention, like in some of the financial media that he expects wage growth and inflation has been pushed towards future and risks of inflation hasn't disappeared, it's just got pushed back.
We, fundamental team at FxWirePro, have similar expectations. We are with the belief that inflation will soon be peeping over the horizon and large portion of deflationary pressure arising from lower energy and commodity prices. Even if oil price stays low, due to change in base its negative impact over inflation will dissipate over time.
Today's inflation statistics from UK, might be indicating of such.
- Producer price index declined by 1% in January, which is strongest reading since December 2014.
- House prices were anyway on the rise, so 6.7% is no surprise.
- Interesting to see, that retail price index edged up by 1.3% from a year ago, despite 0.7% decline in January on monthly basis.
- Similarly consumer prices edged up by 0.3% in January, despite 0.8% decline from December.
We expect, over the longer horizon, inflation is the biggest threat for global economy that could spark great unwinding.
