Mark Carney’s arithmetic mean table means no further stimulus

Today Bank of England published its Quarterly inflation report. That followed a speech from Governor Mark Carney.

Pound has taken a hit erasing all previous gains from strong unemployment report and wage growth.

• Unemployment rate dropped by 0.1% to 5.5% as expected, while average 3 months earnings growth beat estimates. Average earnings rose by 2.2% excluding bonus and grew by 1.9% including it.

Pound touched 1.575 post unemployment release, however inflation report pushed it towards 1.564 as report showed weaker inflation. However not much was new in the report that has not been iterated by BOE policymakers.

• Inflation for March has dropped to zero percent, still not an unexpected one. BOE officials including Mark Carney has warned against it.

Mark Carney' arithmetic table and inflation projection -

In his letter to Exchequer Mr. Osborne, BOE Governor, presented a nice arithmetic table explaining why inflation might be down in first quarter.

• In the table, it shows during pre-crisis period of 1997-2007, food Energy and other goods contributed about 0.4% to overall inflation compared to -1.1% in March, 2015. Services contributed about 1.6% to the inflation for the same period compared to 1.1% in March, 2015 thus contributing about -2% to headline inflation.

It is clear that, BOE official especially Mr. Carney blames energy and food for such low headline figure and would likely remain mute especially when oil is showing some signs of comeback and long end yields rose sharply. In the press conference he mentioned that no further stimulus is required.

Pound is down around 1.566 and might still go down a bit further, however will soon start looking beyond the report. Support around breakout level of 1.55-1.555 remains strong.