Daily Trends Now
Daily Trends Now

UK firms plan biggest pay rises since 2008, boosting rate hike case

UK firms plan biggest pay rises since 2008, boosting rate hike case

Tuesday's numbers showed consumer price inflation (CPI) held at an annual rate of 3.0 per cent in January, unchanged from the month before and above a consensus forecast of 2.9 per cent.

The dogs that didn't bark were the U.S. dollar, virtually unchanged after the number, and the real (inflation-adjusted) USA 10-year yield, which is slightly down.

Economists were pencilling in a drop to 2.9%.

US stocks opened lower as fears of firming inflation intensified after a report showed consumer prices in January rose faster than expected.

"But in fact the rate remained at 3.0%, with price rises driven by clothing, footwear and recreational goods/services".

If the market believed that the CPI surprise represented a trend rather than a blip, it would bid up real yields, expecting the Federal Reserve to raise interest rates in the future (expectations about the future federal funds rate are the big near-term determinant of real yields).

"The BoE's rhetoric echoed that of September's meeting minutes, which preceded last November's rate hike, and it now looks like the next rise may well happen in May".

"Indeed Bank of England policymakers said last week they'll try and bring inflation back to target more quickly than previously expected, which means rates could rise faster and further than anticipated".

ONS senior statistician James Tucker said: "Headline inflation was unchanged with petrol prices rising by less than this time previous year".

'However, the cost of entry to attractions such as zoos and gardens fell more slowly. Higher borrowing costs slow economic growth.

At the pumps, petrol prices rose by 1.1p per litre on the month to 121p per litre, while diesel rose 1p to 124.5p per litre.

The consumer food basket inflation eased a little to 4.7 per cent in January.

Other items contributing to the gain in CPI included rents and owners' equivalent rent, which both rose 0.3 percent from December; medical care, up 0.4 percent; and motor vehicle insurance, which advanced 1.3 percent, the most since 2001. Inflation may increase in the coming months due to oil price hike and food inflation not coming down.

Against the euro, the pound was trading flat at 1.12 euros.

The recent market correction started in the U.S., largely driven by its own concerns over rising wages, and a number higher than the 0.3% month-on-month forecast could be taken negatively by the market.

Economists now expect the Monetary Policy Committee to hike rates from 0.5pc to 0.75pc in May.

India's industrial production growth declined again in December to 7.1% from a high of 8.8% in the previous month but the retail inflation bettered in January after a 17-month high in the previous month.

USA bond markets began the week on the back foot after comments at the weekend by Mick Mulvaney the White House budget director that interest rates could spike as a result of the new budget plans.


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