CPI came in at -0.3% m/m in November reducing the year on year figure by 0.3% points to 1.0% y/y. This was lower than we as well as the market and the BoE expected. The main contributions came from lower transport costs and falling prices of recreational and cultural goods. Also food and motor fuels prices contributed to the fall.
In its 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 (Finance Minister) George Osborne explaining why inflation has deviated so far from the target. Carney acknowledged this last month but he also stated that he is confident that this will only be “temporary” and that inflation will return to the 2 percent target by the end of the BoE’s forecast period, without any additional action.
Today’s low inflation numbers and the weak inflation outlook support our view that there is no pressure on the Bank of England to hike rates. Our forecast is a first rate hike in June 2015. However the risks are tilted towards a later rate hike.
Details, CPI Inflation November:
CPI, m/m: -0.3% (Nordea 0.1%; consensus 0.0%; prior 0.1%)
CPI, y/y: 1.0% (Nordea 1.3%; consensus 1.2%; prior 1.3%)
Nordea