Published: Fri, February 17, 2017
Hi-Tech | By Lula West

United Kingdom inflation highest since June 2014

United Kingdom inflation highest since June 2014

United Kingdom consumer prices fell 0.5% in January with the year-on-year rate increasing to 1.8% from 1.6% the previous month given that prices had fallen more sharply in January 2016.

Input prices jumped 20.5% annually, following a 17% rise in December. Health care costs rose 0.2 percent.

It is notable that in his most recent inflation report, Bank of England governor pushed up his outlook for United Kingdom growth, but left his outlook for inflation unchanged. The costs of auto and truck rentals went up quite a bit more (3.2 percent for the year), while the costs of used cars and trucks fell 3.7 percent. The EUR/SEK is now higher at 9.4712 Swedish Krona, a gain of 0.22% while the USD/SEK is up 0.51% to trade at 8.9775 Swedish Krona. Costs for checking accounts and other bank services went up 5.3 percent.

In January 2016, the print was (-) 1.07 percent. Prices for personal computers and peripheral equipment are down 4.3 percent, while prices for computer software and accessories are down 7.8 percent.

Retail price inflation - tracked by British inflation-linked government bonds and many commercial contracts - also rose to its highest since June 2014, at 2.6 per cent.

The three-year high for cost of living increases means that even if savers lock up their cash for five years in bond, they will barely see a return.

Food prices, which account for about one-third of China's CPI, went up 2.7 percent, while non-food prices increased 2.5 percent. Core inflation is up by 0.3%, above 0.2% that was estimated.

The price indexes for both imports and exports showed similar results.

Ben Brettell, senior economist at Hargreaves Lansdown, noted that most of the increase was the effect of rising petrol and diesel costs, as a combination of the fall in sterling and the rise in oil prices fed into the numbers. Excluding foods and fuels, there was no measured change in export prices.

The ONS noted prices for motor fuels had risen by 3.4 per cent between December and January, in contrast to a 2.6 per cent fall a year earlier.

Inflation in manufactured items saw some uptick at 3.99 percent compared with 3.67 percent in December. It was the largest monthly increase in over a year. Year over year, core CPI is up from 2.2% to 2.3%, and above 2.1% expected.

Strong consumer spending helped power growth in the final months of past year, with GDP expanding by 0.6 per cent in the fourth quarter, in line with the second and third quarters.

On month, output prices gained 0.6% versus the expected rate of 0.3% and December's 0.2% rise.

"However, given the extraordinary times due to the Brexit, the BoE Governor Mark Carney had clear stated that the bank is ready to tolerate a higher than otherwise inflation and would stay as accommodative as possible during the two-year Brexit negotiation period". Clearly there's a risk that any further significant increase in earnings alongside rising inflation expectations will test the Bank's tolerance of high inflation, prompting rate hikes later in 2017.

Combined, CPI rose by 1% over the month. Year over year, wages are flat and did not advance by 0.8% predicted.

The euro meanwhile dropped by 0.1% to 1.0572 recording a one-month low in the middle of market uncertainty brought by weak economic data in the eurozone, Greek bailout, the presidential elections in France and ongoing political tension in different parts of the region. However, the price of jute sacking bag (1 per cent) declined.

Food prices also exerted an upward influence on the annual inflation rate.

Food prices showed the smallest annual decrease since July 2014 as the cost of chocolate and candies rose by nearly five per cent on the month. While inflation is still tame, it is taking its toll on real salaries. The Fed's official inflation target is 2%.

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