The inflation figures have fallen again but this seems to be caused primarily by lower utility bills. I would say there are concerns that inflation may creep back up and Corporate Bond & Fixed Interest Contract values do seem to have an increase priced-in.
Consumer Prices Index (CPI) inflation fell to 3.4% and Retail Prices Index (RPI), including mortgage interest payments, fell to 3.7%. (This data has been provided by the Office for National Statistics.)
These figures are still well above the Bank of England’s target for inflation of 2% on the CPI measure.
Analysis
Average earnings growth stands at 1.4% per annum; and so families will not have noticed much easing on household budgets but rather a further squeeze and the rate of increase in the squeeze has slowed a bit.
The Bank of England is hoping that the rate of inflation will continue to fall over the year and have re-stated that this is their focus. I expect at least short-term that there may be a rise in inflation assuming there is a continuation in the rise in oil prices, the increasing value of Sterling and the fact that fixed interest markets have priced in a further increase; after this as for what follows, I think it is fair to say this is, at best, unclear.
What’s Next?
Chancellor George Osborne will set out his third Budget tomorrow. He has promised to help low and middle earners but it is clear, in the current state of financial affairs, if you give with one hand then you must take away with the other. So, where the cuts and where the payments are applied may have a significant effect, at least for the markets.
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