UK inflation better than expected, but remains mixed

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After taking a pounding from last week’s UK inflation report hearing where the Bank of England cut the inflation outlook into early 2015, the latest CPI data released by the ONS showed that the UK’s inflation remained slightly upbeat.

Headline CPI improved to 1.3%, above estimates of 1.2%. On a yearly basis, the CPI managed to tick higher after making a low of 1.2%. Core CPI y/y however came in unchanged at 1.5% and softly below estimates. The Pound which remained in a tight range saw a mostly muted reaction ahead of key data from the US later today.

  • Core CPI y/y 1.5% vs. 1.6% consensus
  • Headline CPI y/y 1.3% vs. 1.2% consensus
  • Core CPI m/m 0.1%, in line with expectations

The rather mixed CPI data, although a bit weaker met expectations as the GBPJPY managed to continue its rally, free from the tail risks of today’s CPI data. The BoE, in its inflation report hearing had said that inflation would be most likely subdued into the end of this year, while noting that the BoE’s interest rate hike could possibly start as early as October 2015. The British Sterling had dramatically weakened on the BoE’s outlook as it pushed back the interest rate time table as well.

Across Asia, it is reported by news media NHK, that Japanese Prime Minister Shinzo Abe has told his party (LDP) leadership that he would be dissolving the parliament calling for snap elections and would also delay the sales tax hike by 18 months, initially due for a hike to 10% in October 2015 (currently at 8%).  The snap elections are likely to be held on 14th December and are being seen as a no-contest to Abe’s LDP party but more of seeking for a mandate to push ahead with further reforms.

Although the news isn’t officially confirmed, the Yen weakened on the reports which were widely expected by the markets anyway. The official confirmation should finally put to rest a week of speculation which saw the Yen bouncing off within a range while failing to hold on to the new highs that were being made.

The BoJ will be holding a press conference tomorrow in what could seem like a further expansion to its monetary policy, however it seems a bit difficult considering the previous stimulus expansion managed to barely scrape through. A weaker economic outlook based on the GDP data released earlier this week could however change the opinion of the dissenters in the BoJ’s policy making committee.

There have been rumors that the Japanese government is putting together a mini stimulus package to the tune of up to 3 trillion Yen to stimulate consumption.

The other key event from the European trading session is the German ZEW economic sentiment which is expected to rise after a substantial decline last month. Improving GDP data in the region and Germany avoiding a near recession are being seen as supportive of an improving outlook, albeit the sentiment index being below 0.

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