CPI increased by 0.1% m/m in October, and the year on year figure rose to 1.3%, slightly higher than expected.
The main contributions to the rise in the year-on-year figure came from smaller falls in transport costs, notably motor fuels and air fares, than a year ago and price increase for computer programs. Food and motor fuel prices were still downward contributors to CPI inflation.
The low inflation reflects low food, energy and import prices and to some extent also modest wage increases. In their November Inflation Report the BoE stated that inflation “…is more likely than not to fall temporarily below 1% at some point over the next six months”. If inflation falls below 1% Mark Carney will have to write a letter to the chancellor George Osborne explaining why inflation has deviated so far from the target.
Mark Carney recently acknowledged this and that he is confident that a possible print below 1% will be temporary and that inflation will return to the 2% target by the end of the BoE’s forecast period.
The below target inflation and weak inflation outlook support our view that the Bank of England is not in a hurry to hike rates. We stick to our forecast of a first rate hike in June 2015.
Details, CPI Inflation October:
CPI, m/m: 0.1% (Nordea 0.1%%; consensus 0.1%; prior 0.0%)
CPI, y/y: 1.3% (Nordea 1.2%; consensus 1.2%; prior 1.2%)
Nordea