BOE breathes a sigh of relief as the wrong inflation rises

It's all about the energy folks, or is it?

The core number staying steady is some relief to Carney & Co as it means their tolerance levels can go a bit further, and they can sit on their hands a bit longer, on rate hikes.

Energy prices get all the headlines, such as prices paid by factories for fuel and materials rose 20.5% in Jan, the highest since Sep 2008. That's forced output prices to rise the most since Jan 2012 at 3.5%. The output component is what's important as that's where firms pass prices on.

Retail prices were also up, including the numbers ex-mortgage interest payments, so that points to further underlying inflation.

The pound has sunk on the expectation miss, and rightly so. If the core had missed but had risen vs Dec, we wouldn't have seen such a big move. This doesn't change the inflation picture all that much though. Oil prices are only set to go one way, if you think the oil deal will do its job. That leaves the UK looking at higher inflation, and as I'm fond of repeating, that will lead to a swifter feed through to the core numbers than many expect.

I doubt this is the end of the story so I wouldn't go chasing this pound move much lower. Only if we see inflation falling can you look to scrub out any hopes of a BOE hike. Until then, this is just a can kick until next month.