that the scenario of inflation in the UK was not positive was common knowledge for some time, but the jump in consumer prices in December took the most part of market participants by surprise. In the last month, in fact, the CPI showed an increase of 1% m / m, the largest monthly rise in the last twenty years, exceeding consensus expectations of +0.7% m / m. Compared to the same period last year the rise in inflation is 3.7% y / y from 3.3% y / y in November and against 3.4% y / y consensus expectations. Inflation is thus remained above the threshold of 3% for the tenth consecutive month. The main reason behind the jump in consumer prices was, as widely expected, the trend in energy prices: the transport component alone accounted for 0.25% to the monthly change. A role major leap in inflation was also played by increases in the utility sector, with the prices of gas and electricity, rose in line with the announcements of major companies in the sector during the previous weeks, and food prices, the which annual growth reached 6.1%.
However it was not just food and energy prices to be higher than expected. The core CPI, in fact, has risen from 2.7% y / y to 2.9% y / y pointing out that the underlying inflationary pressures may be greater than had the same central bank. The prices of services, for example, showed an increase of 3.9% y / y despite the weakness in demand that would limit the increases.
medium-term scenario for prices seems to be even worse. Beginning with the January data, in fact, not only will feel the effects of the new jump in energy prices, with oil that has been reported in permanent above the threshold of 90 dollars per barrel in the first weeks of 2011, but also the rise in VAT from 17.5% to 20% entered into force Jan. 4. It is not, in fact, said that the VAT impact on inflation will be zero as was the case last January, when it was reported by 15% to 17.5%.
The jump in inflation makes the decisions of the Bank of England over the next few months very difficult. If, in fact, the monetary authorities of the United Kingdom had always provided a leap in inflation over the coming months, with a peak just above 4% y / y expected in the spring, recent developments could be worse than from their own estimate. The jump in inflation in recent months is, in fact, beginning to be felt in consumers 'expectations: a survey of the Bank of England last December, for example, showed that consumers' expectations for inflation have been taken to Most recent two years. It would, therefore, the risk that the expected price inflation 2% by the end of the forecast period of two years the central bank could not be reached.
The market pressures on the Bank of England to raise rates by a record low of 0.5% over the coming months could get higher and higher, if only to get a confirmation that the central bank has not abdicated its goal to maintain inflation at a target of 2% over the medium term. Most of the economists of the major investment bank now expects the first rate hike may happen in the first half of this year and no more in the third quarter as expected before the publication of inflation figures for December. For example, George Buckley of Deutsche Bank estimated that the first rise can be decided at the meeting in May on the occasion of the publication of the second inflation report of 2011 (the first will be released in mid-February), when you have more information on the economic environment. Data released in recent weeks, in fact, showed a slower rate of economic growth, which led to the federation of British industry to estimate growth in the first two quarters of 2011 no more than 0.2%. In the view of industrial policy recently adopted restrictive fiscal Cameron government to bring the deficit under control in the coming years (from 10.1% this year, the deficit is expected to fall 2.1% in fiscal year 2014/2015) will have a negative impact on economic growth in the first part of next year. A restrictive monetary policy of the Bank of England is likely, therefore, confronted with the need to support economic growth. Precisely for this reason Jonathan Loynes of Capital Economics suggest to the monetary authorities to keep their nerve and continue to provide support to economic growth. The setting of the monetary policy of the Bank of England is therefore very uncertain monetary policy is wait and the most likely scenario in the first quarter and the next steps should depend predominantly on the data that will be published in the next months. However, despite the jump in inflation, the beginning of a highly restrictive monetary policy does not appear imminent.
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