13 Jan 2015
UK CPI faling just temporary? - Rabobank
FXStreet (Guatemala) - Jane Foley, Senior Currency Strategist at Rabobank noted the drop in UK CPI, but said the drop in CPI should be temporary.
Key Quotes:
From a policymakers’ point of view the downside of falling prices is the risk that it could spark a deflationary spiral.
"The BoE has reported that households’ inflation expectations have declined in 1, 2 and 5 years ahead. There is risk that this could be self-perpetuating if it restrains consumers’ consumption habits or if it feeds through into wage bargaining".
"The risk of a deflationary spiral, however, is arguably lessened by the fact that the fall in inflation has been caused by a surplus of supply of commodities rather than an underlying drop in UK consumption demand".
"This supports the view, that even though UK CPI inflation may have further to fall in the coming months, it should still be temporary".
Key Quotes:
From a policymakers’ point of view the downside of falling prices is the risk that it could spark a deflationary spiral.
"The BoE has reported that households’ inflation expectations have declined in 1, 2 and 5 years ahead. There is risk that this could be self-perpetuating if it restrains consumers’ consumption habits or if it feeds through into wage bargaining".
"The risk of a deflationary spiral, however, is arguably lessened by the fact that the fall in inflation has been caused by a surplus of supply of commodities rather than an underlying drop in UK consumption demand".
"This supports the view, that even though UK CPI inflation may have further to fall in the coming months, it should still be temporary".