Source: Forex News
The rate of inflation is one of the most important measures central banks from around the world look at. This is because a rising rate of inflation – at a time when wages are not rising – would lead to more suffering among the people. They would struggle to pay for basic needs like food and shelter. Therefore, central banks regularly look at the rate of inflation, the employment and unemployment rates, and the wage growth. If inflation is rising faster than wages, they respond by hiking rates, to reduce the amount of spending.
Today, the Office of National Statistics (ONS) in the UK released the consumer prices data from the UK. In May, the CPI remained unchanged at 0.4%, which was expected by economists. It rose at an annual rate of 2.4% as expected. In addition, the important core CPI – which excludes the volatile food and energy products – remained unchanged at an annual rate of 2.1%, which was expected. Fuel costs rose at the highest rate since 2011.
The rate of inflation remained unchanged for the first time this year. As you recall, in December, the CPI rose at a rate of 3.1%, which led to the BOE governor writing a letter to the exchequer secretary with an explanation. After that, the rate started falling, reaching a low of 2.4% in April. Today’s number is the lowest since April last year when the CPI was at 2.3%.
After the data was released, the GBP/USD pair fell to a low of 1.3312, which is the lowest level since Wednesday last week.
The report comes after the country released disappointing manufacturing numbers on Monday and impressive employment numbers on Tuesday. The manufacturing production for the country fell to the lowest level since 2012. The employment numbers showed that 146K people were employed in May with the unemployment rate remaining at 4.2%. Wage growth remained unchanged at 2.5%, while the claimant count fell to negative 7.7K.
In addition to the CPI data, the ONS released the PPI data that were mixed. The PPI is an important measure of inflation. It measures the change in the price of goods and raw materials purchased by manufacturers. In May, the PPI input rose by 2.8%, which was higher than expected 1.8%. This was the highest reading since 2016. At an annualized rate, it rose by 9.2% which was higher than the expected 7.6%, which was the highest level since July 2017.
The data came after a day of increased political activity that included the resignation of the justice minister who was opposed to Theresa May’s vision of Brexit. He resigned to campaign for a more pro-European stand. Theresa May also secured a vote on her Brexit vote.
Meanwhile, crude oil was mixed today after a report by IEA said that Venezuela and Iran would lose more than 30% of crude oil output in the coming year because of the US sanctions. This would have meant higher crude oil but the hopes were eroded with a report that Saudi Arabia was increasing production. WTI is currently trading at $66 while Brent is trading at $75.
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