Stocks turn down as inflation pressures rise

Ann Santiago
February 14, 2018

Inflation came in at 3 percent in January, the same rate as seen in December, the Office for National Statistics reported Tuesday.

That strong increase was almost matched by the January 2018 number, and year-over-year inflation remained stable at 2.1%.

Economists were pencilling in a drop to 2.9%.

Stock and bond markets dropped sharply this morning on an unexpectedly high reading for the US Consumer Price Index in January.

"House price growth increased slightly, driven by rises in Scotland and the South West".

'This adds further weight to the case for higher interest rates sooner rather than later, ' he said.

"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".

"The committee is of the view that the nascent recovery needs to be carefully nurtured and growth put on a sustainably higher path through conducive and stable macro-financial management", the central bank said in its monetary policy statement.

"Indeed Bank of England policymakers said last week they will try and bring inflation back to target more quickly than previously expected, which means rates could rise faster and further than anticipated". The growth in the cost of raw materials also slowed, with the prices of some imported materials falling.


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.

Still, some analysts cautioned that they will need more data before concluding that January's consumer price increases signal the start of a meaningful pickup in inflation. In my opinion, there's a reasonable chance the I Bond's fixed rate will rise above 0.1% on May 1.

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

Food price inflation also appeared to be slowing, having risen strongly since mid-2016, edging down 0.1% on the month amid larger falls in the cost of meat, oils, milk, cheese and eggs. While the overall amount of new federal spending of $200bn may not seem that much when set against the headline figure of $1.5trn, the forecast of a 10 year deficit of over $7trn when compared to a previous estimate of $3.15tn implies a barrow load of extra bond issuance which could well drive prices much lower.

USA retail sales dropped 0.3 percent in January, losing anticipated gains from December 2017.

The 1.7 percent monthly gain in apparel prices, which account for about 3 percent of the CPI, was the biggest since 1990.

While economists and investors have seen a Fed interest-rate hike in March as a near-certainty, the details of the latest CPI report could play a role in the timing and number of rate increases throughout 2018.

The Food Index stood at about 18.92 per cent (year-on-year) in January 2017, down from the rate recorded in December (19.42 percent).

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