UK inflation preview

Today inflation reading will be published from UK at 8:30 GMT. Data set include Consumer Price index (CPI), producer price index (PPI), and retail price index (RPI) and house price index (HPI).

• Inflation readings will be closely monitored by both markets and officials at Bank of England (BOE) as it remains key concern of Bank of England (BOE), before it considers raising rates.

• However, Bank of England (BOE) Governor Mark Carney and other officials have clearly indicated that inflation might stay low in the near term, due to lower energy prices. Moreover for the bank recent focus has been on Brexit and not in inflation.

• Reports also show, in the event of Brexit, inflation can shoot up but BOE is likely to tolerate that and may even go for rate cuts to boost growth.

Past trends –

• CPI has been hovering close to zero percent for months now. In January last year reading was deep in negative territory, fell by -0.9% m/m, and bounced back since in February and March. Yearly growth in CPI has been negative for first time in April in at least 50 years and remained close to zero since. However this year, it has been showing some signs of improvements. In March CPI grew 0.5% y/y.
   
• PPI is broadly under downside pressure due lower input costs thanks to lower commodity prices. PPI was 0.2% y/y in March.
   
• RPI last year mostly remained in positive territory however in later half of the year and especially February saw sharp decline. RPI after moving to positive territory since March last year, dipped into negative in July but jumped up to 0.5% in August, only to become subdued again. But this too showing resilience this year. RPI was 1.6% y/y in March.

Expectation today –

• CPI is expected at 0.3% m/m and 0.5% on yearly basis.
• PPI is expected to rise further to 0.3% y/y.
• RPI is expected marginally softer at 1.5% y/y.
• House prices are also expected to move up in April by 7.9% from a year ago.

Market impact –

• It is more likely that inflation measures will edge up, due to rise in oil prices and change in base.

Pound is best performer today, up more than half a percent. Currently trading at 1.452 against Dollar.