Countries around the world continue to see inflation indicators jumping more than expected. For the UK, pricing levels throughout the production chain through to the end consumer are all jumping more than expected.
Both headline and core consumer prices (CPI) are now at, or just above, the MPC’s target level of 2%. The question is whether this will have an impact on the Bank of England’s monetary policy decision. We believe that there is enough excuse to still play the waiting game.
A +10.7% year on year jump in raw materials prices is playing a key role in consumer prices. However, this pricing pressure will now begin to moderate as the wild pricing swings of Q2 2020 drop out of the data over the summer.
The MPC will subsequently look to monitor the impact on consumers over the summer.
We expect them to take a more informed view as to how transitory these inflationary pressures are in the August MPC meeting.
There is a mild GBP positive bias to market reaction, but markets are fairly attuned to higher than expected inflation numbers right now. This might be a different story if higher than expected inflation data continue through Q3.
DATA: 08:00 *(UK) MAY CPI M/M: 0.6% V 0.3%E; Y/Y: 2.1% V 1.8%E (first time above the BOE target level since July 2019) - CPI Core Y/Y: 2.0% v 1.5%e - CPIH Y/Y: 2.1% v 1.9%e - RPI M/M: 0.3% v 0.3%e; Y/Y: 3.3% v 3.3%e; - RPI-X (ex-mortgage interest payments) Y/Y: 3.4% v 3.6%e - Retail Price Index: 301.9 v 301.9e **Note: BOE has a 2% inflation target.
Related ( GBP/USD EUR/GBP GBP/JPY GBP/EUR GILTS EWU INFLX ).
- Source: TradeTheNews.com