UK inflation preview

Today inflation reading will be published from UK at 8:30 GMT. Data set includes Consumer Price index (CPI), producer price index (PPI), and retail price index.

• Inflation readings will be closely monitored by both markets and officials at Bank of England (BOE) as it remains key concern of Bank of England (BOE), before it considers raising rates.

• However, Bank of England (BOE) Governor Mark Carney and other officials have clearly indicated no appetite for further stimulus as they blame the drop in CPI to lower energy prices. Still doubts remain that how long can the bank keep mum if inflation gauges including the core measure continue downfall.

Past trends -

• CPI has been hovering close to zero percent for months now. In January reading was deep in negative territory, fell by -0.9% m/m, bounce back since in February and March. Yearly growth in CPI has been negative for first time in April in at least 50 years.
  
  
• PPI registered first monthly positive number in February 2015, first time since April 2014. However it is still not strong enough to exert any price pressure.
  
  
• RPI last year mostly remained in positive territory however in later half of the year and especially January saw sharp decline. RPI has been hovering in negative territory since January. In April, RPI was 0.4%.

Expectation today -

• CPI is expected to grow at 0.2% mom, in line with recent rise in oil price and demand.
• PPI is expected to grow at 0.1%.
• RPI is expected to soften to 0.3%.
• House prices are also expected to move up in May by 10.2% from a year ago.

Market impact -

• Better than expected inflation reading would provide additional boost to pound, which is already stronger against most counterparts.
• Weaker than expected result would keep pound range bound ahead of FOMC announcement tomorrow.

Pound is currently trading at 1.56 against dollar, key support lies at 1.548-1.545 and resistance at 1.566-1.572 and 1.595-1.6.