The pound has fallen well below $1.25 on bad inflation news

15 February, 2017, 00:52 | Author: Sam Montgomery
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He said the probability of higher inflation remained a concern, with sterling's outlook likely dictated by expectations about the prospects for future rate rises.

Inflation is now also just a whisker away from the Bank of England's government mandated inflation target of 2%, and at its highest level since June 2014.

United Kingdom consumer prices fell 0.5% in January with the year-on-year rate increasing to 1.8% from 1.6% the previous month given that prices had fallen more sharply in January 2016.

The Consumer Prices Index - the Bank of England's official inflation benchmark - rose from 1.6% to 1.8% in January, pushing closer to the Bank's 2% inflation target.

New data from GfK's Inflation Watch, which looked at consumers views of price fluctuations over the past 12 months, reveal that the number of people reporting price hikes is rising dramatically. The figure also matched preliminary report.

Howard Archer, chief United Kingdom and European economist at IHS Global Insight, has pencilled in inflation of 1.9% for January but said some prices rises could be offset by a discounting drive from retailers.

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With the USA labor market remaining robust the rising inflation will give the Federal Reserve further impetus to continue normalizing interest rates.

Experts said, demand slowdown due to demonetisation could be one of the factors behind the fall in inflation.

India's wholesale price inflation (WPI) shot up to 5.25% in January from 3.39% a month ago on the back of rising fuel prices even as food and vegetable prices contracted during the month.

The key question for investors is whether the fact that prices are rising faster than wages eventually leads to a fall in consumer spending.

This comes at a crucial time for the Bank of England (BoE), which must decide on its policy reaction to any signs of increasing inflationary pressures that United Kingdom consumers could face. The figure was up 0.4 percentage point from December and above the market consensus of a 2.4% increase polled by Thomson Reuters.

The inflation rate for the "machinery and machine tools" group declined by 0.1 per cent due to lower prices of machine tools, pump and assembly and fibre optic cable.

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