We got inflation data from the UK yesterday: GBP/USD nose dives to 1.5981 as both the headline and the core come in lower and also a weak PPI
But, says this article from Australia, “much of recent weakness relates to volatile and often temporary factors, and suggests that inflation may rebound over the next year.”
It says:
- Headline inflation is being dragged down by volatile factors, such as food and energy, which could easily swing the other way.
- On the domestic front, wages and productivity remain disappointing and go some way to explaining why inflation remains so subdued.
- But with the UK labour market continuing to improve, I anticipate that wage pressures will become more pronounced and widespread over the next year. Productivity growth, however, will need to pick-up for the UK recovery to maintain its recent run of strong growth.
- Overall, the risks to inflation appear generally on the upside.
- Oil prices can easily reverse, while domestic wage growth should begin to improve as the labour market recovery persists.
- The sterling continues to create uncertainty, but I expect a further depreciation against the US dollar. A depreciation against the euro is less likely given the latter’s ongoing troubles.
