UK DATA: Jan CPI -0.5% m/m; +3.6% y/y vs Dec 4.2% y/y
–In line with median
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Consumer price inflation declined sharply as expected in January as
the hike in VAT seen last January fell out of the annual comparison.
Consumer prices fell 0.5% on the month in January causing inflation to
fall to 3.6% on the year from 4.2% in December, in line with the median
forecast and the lowest since November 2010. Since November inflation
has fallen by 1.2 percentage points the largest two month fall since
late 2008, adding weight to to the Bank of England’s view that it will
fall sharply back to target or below this year. In spite of the the
latest decline BOE Governor Mervyn King will still need to write an open
letter to Chancellor George Osborne to explain why inflation remains
above the target of 2%. The letter is due to be published at 1030BST