February 23, 2017

Inflation jumps to two-year high of 1.8 per cent

16 February 2017, 01:30 | Winifred Adams

Inflation jumps to two-year high of 1.8 per cent

There was upward pressure on the annual inflation rate from rising prices for motor fuels and to a lesser extent food prices which were unchanged this year having fallen in January 2016. "The Bank of England's now neutral stance is significantly supported by its latest estimate about the amount of spare capacity in the economy, however if the path of CPI is stronger than it now estimates, we may eventually see a stronger reaction from the central bank".

At a more granular level rising costs are beginning to alarm importers.

However, expenses on primary articles, which constitute 20.12 per cent of the WPI's total weight, rose by 1.27 per cent during January.

The recent uptick in wholesale prices, just like the big decline in 2015, has been exaggerated by a rebound in the cost of oil.

The cost of medical care rose 0.2 percent, with the prices for hospital services and prescription medicine both increasing 0.3 percent. This was the first fall in six months and matched economists' expectations.

It seems it would take hard evidence to prove that the global supply of crude oil is dwindling enough to motivate a higher price for the commodity.

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Country's annual retail inflation eased to 3.17 per cent in January from 3.41 per cent in December and 5.69 per cent reported during the corresponding period a year ago, official data showed on Monday.

Prices started to pick up following the Bank of England's decision to cut interest rates in the aftermath of the UK's vote to leave the European Union, and the fall in the value of the pound.

On the wholesale price front, the acceleration in January was driven by higher input costs (non-food primary articles, minerals, fuel, basic metals), which more than offset the tepid food inflation reading (barring sugar) caused by demonetisation, said Nomura's Sonal Varma. Survey data show United Kingdom manufacturers' costs rising in January at the steepest rate in 25 years' of data collection.

Headline inflation has been under 4 percent since November, well below the RBI's 5 percent target for March and medium-term target of 4 percent.

The Labor Department said its producer price index jumped 0.6% on a seasonally adjusted basis in January.

Commenting on the latest inflation figures, Frances O'Grady, general secretary of the TUC, Britain's main trade union organization, said: "The last thing working people need is another pay squeeze". The figures add further to evidence that a sustained period of deflation of food prices since mid-2014 is coming to an end.

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