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UK CPI inflation continued its surge in December, as the annual rate firmed to 1.6% y/y from 1.2% y/y in November, the highest since July 2014, well above expectations (CON: 1.4%, LBCB: 1.3%). The CPI ‘core’ rate (excluding energy, food, alcohol and tobacco) also exceeded our and consensus expectations, rising to 1.6% y/y.
The headline uptick was also mirrored in RPI inflation which pushed up to 2.5% y/y in December, with the RPI index at 267.1 above our and the consensus call. The outturns left the RPI-CPI wedge a little narrower at 0.9pp.
Looking ahead, a further narrowing of the wedge seems likely as housing-related components drag on RPI relative to CPI, although the deceleration in house price growth continues to look remarkably gradual. Indeed, official ONS data released in parallel – the broadest UK house price index – showed an acceleration in price growth, from 6.4% y/y in October to 6.7% y/y in November.
Inflation figures are also released in the US and the euro area this week, although the euro area data are final estimates. Rising headline inflation is a developing theme across many countries and the euro area has already reported December inflation running at a two-year high. The US CPI data are expected to post a further rise as well.
Elsewhere, China’s fourth quarter GDP report is due. While its recent export performance has been disappointing, rising imports point to the continued resilience of China’s domestic economy. Downside risks remain, but fourth quarter growth is predicted to be unchanged at an annual 6.7%.
While cable stuck between a pivotal point at 7DMA, 1.2078 and 1.1971, major downtrend to see deep tunnels. The forecasts for GBPUSD suggests the cable in the upcoming months to remain in its new range above 1.20, but not rise as high as 1.29, in fact, convictions for around 1.18 levels seems quite prudent.
