19/10/16 - UK's inflation at two year high

GBP

The Pound strengthened across the board yesterday morning after the UK recorded its highest rate of inflation in nearly two years because of rising prices for clothes, hotel rooms and petrol. Inflation rose to 1.0% in September, up from 0.6% in August after clothing saw its biggest price rise since 2010 and fuel, which was falling a year ago, was also more expensive.
 
Economists have predicted the cost of household items will rise further, particularly when the fall in the pound makes food and clothing from abroad more expensive. However, the ONS said there was "no explicit evidence" the weaker pound was the reason for higher prices.
 
The return of higher levels of inflation is likely to be one of the defining issues for Theresa May's government. Once the figure for inflation rises above the figure for wage growth - at present running at just over 2% - then incomes start falling in real terms. That is politically uncomfortable for any government, particularly one that has staked its reputation on making the economy work "for everyone".
 

USD

Yesterday afternoon the US reported that the cost of living rose at the fastest pace in five months on energy and shelter prices, a sign inflation is getting closer to the Federal Reserve’s goal.

The consumer-price index increased 0.3 percent in September showing prices have gradually increased as housing costs continue to climb and the drop in energy prices abates. The data, along with a still-strong labour market, may keep policy makers on course for a quarter-point interest-rate increase in December after holding off on hikes so far this year.

Fed officials, who are considering whether to raise the benchmark interest rate before year’s end after remaining on hold for all of 2016, might find support for a rate hike amid bubbling inflation. 
 

Key Announcements

09:30 – GBP – Average earnings forecast to remain at 2.3%

09:30 – GBP – Claimant count is expected to increase to 3.4k

13:30 – USD – Building permits forecast to increase to 1.17m

15:30 – USD – Crude Oil inventories