Inflation decreased, transitory, or can continue?
Yesterday we had inflation numbers from UK, Germany, Eurozone, and Canada. While Producer inflation in Germany increased by 14.2% and worried the market participants, in the Eurozone consumer inflation increased by 0.1% to 3.4%, but in the UK, CPI numbers decreased, however many analysts believe that it is a lull before the storm.
According to the published data, UK September CPI data showed that consumer inflation has cooled in both monthly rate and annual rate to 0.3% and 3.1% respectively [0.4% and 0.5% in the same period last year], which was lower than market expectations of 0.4% and 3.2%. The core CPI, excluding food and energy, have also been moderately adjusted back to 0.4% and 2.9%, down from 0.7% and 3.1% respectively. On the producer front also was the same, the monthly rate of imported PPI recorded 0.4%, lower than market expectations at 1.0% and 0.5% of August. In addition, the non-seasonally adjusted core output PPI monthly rate was recorded at 0.5% in September, lower than the 0.9% seen in August (1.0% before revision). Not only that, the core output PPI annual rate was 5.9%, compared to 5.4% in August.
Besides the CPI and PPI data, yesterday we had the Raw Material Price Index (RPI) as well, which shows that along with higher energy prices, we have to wait for higher consumer inflation numbers in the next months. With these all, now we can find out why the market did not pay attention that much to the published data, after the first hours of decreasing of Sterling value against its crosses. In any case, still, market participants` expectations from the Bank of England is to hike the rates at the end of the day, and the pound was able to regain its intraday decline. Earlier this week, the BoE governor, Mr. Bailey, and MPC members warned of the risk of high inflation. In addition to the possibility of ending the asset purchases program, the market also expected the Bank of England to raise interest rates as early as November and then In December or next February, for the second time. This is much earlier than people`s expectations that the central bank will not raise interest rates before March next year.
From the technical point of view also, the Cable still moves in a clear uptrend, however with RIS at 52 and low market volume, signaling possible weakness in the trend and its return.
