Friday, 15 February, 2019

United Kingdom inflation falls to two-year low, offering households help before Brexit

CPI Inflation Eases Further To 2% On Falling Food Prices Retail inflation eases to 2.05% in January
Nellie Chapman | 13 February, 2019, 17:10

The biggest monthly fall for gas prices since the 1980s helped drag down United Kingdom inflation to the lowest level in two years in January as the government's energy price cap came into effect.

"Morgan Stanley expects the United States core consumer price index (CPI) to rise 0.2 percent in January, in line with its three-month average, but sees the headline CPI falling for the fourth consecutive month to 1.5 percent from 1.9 percent".

Thirteen out of the 23 industry groups in the manufacturing sector showed positive growth in December compared to the same month the previous year.

This is down from 2.1% the previous month.

At 2.05 per cent, the overall retail inflation rate is much lower than the Reserve Bank of India's (RBI's) inflation projection of 2.8 per cent for January-March quarter.

It is the first time since January 2017 the pace of price rises is below the official Bank of England target of 2 per cent.

Despite the fall in inflation since late 2017 and the fastest wage growth in a decade, businesses have reported a downturn in consumer spending in recent months.

Meanwhile, the country's industrial output in December rose 2.4 percent from a year earlier, slightly higher than forecast, government data showed on Tuesday. This, combined with a negative base effect, may lead to a four-tick decline of the year-on-year rate to 1.5%. Vegetables recorded a deflation of 13.32 per cent in January as against a decline of 16.14 per cent a month ago, while sugar and confectionery registered 8.16 per cent deflation as against 9.22 per cent deflation a month ago.

"Unlike when the cap is lowered, energy firms don't have to automatically raise prices when the cap is lifted". However, the conundrum of sharp spikes in rural health and education prices still remains and requires watching.

A Reuters poll of 30 economists had predicted CPI to have accelerated to 2.48 per cent in January. "Our expectations for the next few months are also very benign on headline CPI and hence we believe that there is room for further accommodation in the next policy meeting".