Stubborn inflation bolsters case for May interest rate rise


WorldStage Newsonline-- The National Bureau of Statistics (NBS) has announced a drop in the Nigeria' inflation rate, measured by the Consumer Price Index (CPI) from 15.37 per cent in December 2017 to 15.13 per cent in January.

But Ben Brettell, senior economist at Hargreaves Lansdown, says most United Kingdom household budgets have been given little slack from today's ONS numbers - inflation has been above target for 12 straight months, he reminds.

According to the brokerage, the debate on the re-emergence of macro stability risks has intensified owing to the rising headline inflation, widening trade deficit and also the widening the fiscal deficit targets for both the current and next fiscals.

For the market to react strongly, he said, the number would have to be a major surprise and show areas where prices could rise persistently, not just one-off instances.

The Bank of England (BoE) had expected inflation to fall back from 3% and in last week's monthly Monetary Policy Committee meeting the minutes said a rate rise would be needed "somewhat earlier" in order to return inflation to its 2% target.

India's factory output expanded at 7.1% in December, slower than the 25-month-high growth of 8.8% in November as mining and electricity production declined.

US consumer prices likely increased solidly in January, boosted by rising gasoline and rents, but annual inflation growth is expected to have slowed as the large price gains from a year ago drop out of the calculation.

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The main upward effect came from prices for a range of recreational and cultural goods and services, in particular, admissions to attractions such as zoos and gardens. With our pay packets lagging price rises, we're feeling progressively poorer as each month rolls by and this inevitably means we'll spend less.

While average hourly earnings shot up 2.9 percent in January, the largest rise since June 2009, from 2.7 percent in December, some economists do not expect the relatively strong wage gains to translate into higher inflation.

On the currency markets, the pound rose 0.5 per cent against the dollar after the ONS data. Against the euro, the pound was trading flat at €1.12.

"The one positive is that oil prices have softened materially since the beginning of February, which is now translating into lower breakeven rates of inflation". Given that apparel prices change massively between December and January due to post-Christmas discounting, the entire difference may be a result of seasonal adjustment issues.

Chris Williamson at IHS Markit said higher than expected in January added "further pressure for policymakers to hike interest rates again, possibly as soon as May".

The base rate was raised for the first time in a decade to 0.5% last November.

Retail price inflation inched down by 4.0% from a six-year high last December of 4.1%.