Inflation remains a concern in the UK

- "Last week’s data was mixed, but, overall, pointed to a modest US economic recovery. Therefore, no major new announcements are expected at tomorrow’s FOMC statement (p.2, p.3 & p.4)."
- "This week’s focus is on the FOMC statement tomorrow and durable goods orders on Friday, and on the euro zone PMIs on Thursday and the German Ifo index on Friday (p.2, p.3 & p.4)."
- "The Chart of the Week shows the CPI inflation rate and public attitudes to current inflation in the UK. Inflation is of little concerns for the major Western central banks at present, especially not for the countries that are confronted with a modest recovery. However, there is an exception, and that is the Bank of England (BoE). CPI inflation in the UK has been more than 1% higher than its 2% target for 6 consecutive months in August. According to the BoE, too high inflation is due to temporary factors, such as the past depreciation of sterling, higher oil prices and the restoration of the VAT rate. However, a VAT hike and higher food prices might imply that CPI inflation will remain above the 2% target until the end of next year at least. In addition, the chart shows that, in line with actual inflation developments, consumers’ perceptions of the current rate of inflation (according to the BoE/GfK NOP survey) have been rising since late 2009, and also 1-year inflation expectations have increased to the highest level since 2008 (when oil prices rose sharply). Interestingly, inflation perceptions increased when inflation picked-up, but have declined far more modestly when inflation rates fell. As such, the BoE does not only face weak economic growth, but also adverse developments on the inflation front. Therefore, the BoE will have to act very cautious if it does not want to put its credibility as an inflation fighter further at stake."

NIBC Markets Roundup 20100920

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