The office of National Statistics released the CPI data for the month of March, which missed analysts’ forecasts. The data showed that the consumer prices increased by 0.1% during the month. Analysts were expecting the data to show an inflation of 0.3%, a point lower than February’s growth of 0.4%. On an annualized basis, the CPI rose by 2.5% which was lower than the 2.7% traders were expecting. The CPI that includes housing fell from 2.5% to 2.3% which was the lowest level since March 2017.
The biggest contributor to low inflation was the changes to clothing and footwear whose inflation rose at a lower rate than it did a year ago. They were followed by the prices in alcoholic and drinks and tobacco which was contributed by the changes in budget cycle. The taxes on these products were announced in November 2017 instead of March.
As you recall, inflation in the UK reached the critical 3.1% mark in December, prompting the necessity of the Bank of England governor to write a letter to the exchequer treasurer explaining the reason. In the following months, the annual rate has continued to slide with inflation rising by 3.0%, 2.7%, and 2.5% in January, February, and March respectively.
The sluggish growth on inflation now removes the urgency for the BOE to hike interest rates. As I have explained before, central banks use interest rates as a tool for limiting the growth in inflation. A surging inflation at a time of stagnant wage growth is usually not a good thing for the population who are forced to pay more for goods at services with their stagnant wages.
Yesterday, the government data showed that while the unemployment rate had declined to 4.2%, the wage growth issue was still a problem. Last month, wages grew by 2.8% just like it did a month before. This was lower than the 3.0% growth investors were expecting. 55K people were employed while the claimant claims declined.
The data comes at a time when the pound has been strengthening. In the earlier article today, I wrote that the pound had risen significantly in the past one year. In the article, I concluded that the cable had just completed the impulse Elliot Wave and that there was a possibility that it would fall to the 1.4050 level.
Meanwhile, Eurostat released the CPI data of the European Union. The data showed that the CPI grew at 1.0% from last month’s 0.2% while the annualized rate was 1.3% down from last month’s 1.4%. At the same time, CPI ex tobacco was at the same level at 1.0%. Monthly and annualized Core CPI was at the same level of 1.4% and 1.0%.
Again, the sluggish nature of the CPI in Europe could remove the urgency for the ECB to hike rates. In the past meeting, the officials remained committed to the supportive policies and indicated that they would maintain the QE policies until end of September this year.