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14 Jan 2015
UK seeing “joyflation” – ING
FXStreet (Barcelona) - James Knightley, Senior Economist at ING, notes expectations that UK CPI is going to fall further has caused what can now be labelled as “joyflation” as low inflation is creating a very positive environment for consumer spending.
Key Quotes
“UK Consumer Price Inflation dropped to just 0.5% YoY yesterday versus 1.0% in November. This was below the 0.7% consensus forecast and is the lowest inflation reading since May 2000.”
“The primary cause was the plunge in motor fuel costs and the ongoing supermarket price war. Food and non-alcoholic drinks prices are down 1.7% YoY while inflation in the transportation component is running at -1.4% YoY.”
“Outside of these components, core inflation actually rose marginally to stand at 1.3% YoY versus 1.2% previously thanks to rises in alcohol and communication components.”
“CPI is likely to fall further given the ongoing declines in the oil price and the highly competitive food retail environment. This has been labelled as “joyflation” in that it is equivalent to tax cuts as both food and energy are amongst life’s necessities and so lower prices here leave more money in peoples’ pockets to spend elsewhere.”
“It also means that the Bank of England has plenty of room to leave monetary policy ultra-loose. Nonetheless, the BoE will likely emphasise that it looks through temporary shocks and instead focus on the medium-term inflation threat, since this is their remit – targeting inflation at 2% in 2 years’ time.”
Key Quotes
“UK Consumer Price Inflation dropped to just 0.5% YoY yesterday versus 1.0% in November. This was below the 0.7% consensus forecast and is the lowest inflation reading since May 2000.”
“The primary cause was the plunge in motor fuel costs and the ongoing supermarket price war. Food and non-alcoholic drinks prices are down 1.7% YoY while inflation in the transportation component is running at -1.4% YoY.”
“Outside of these components, core inflation actually rose marginally to stand at 1.3% YoY versus 1.2% previously thanks to rises in alcohol and communication components.”
“CPI is likely to fall further given the ongoing declines in the oil price and the highly competitive food retail environment. This has been labelled as “joyflation” in that it is equivalent to tax cuts as both food and energy are amongst life’s necessities and so lower prices here leave more money in peoples’ pockets to spend elsewhere.”
“It also means that the Bank of England has plenty of room to leave monetary policy ultra-loose. Nonetheless, the BoE will likely emphasise that it looks through temporary shocks and instead focus on the medium-term inflation threat, since this is their remit – targeting inflation at 2% in 2 years’ time.”