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Signs of slowing UK inflation


20 January 2022 Written by Alex Kuptsikevich  FxPro Senior Market Analyst Alex Kuptsikevich

Consumer inflation in Britain continues to accelerate, but producer prices show the first signs of cooling. CPI rose to 5.4 y/y in December, with a 0.5% monthly increase after 0.7% in November. Current figures are above 2008 and 2011 peaks and last seen in 1992. However, producer prices are recording a likely reversal in the trend. Producer input prices (the earliest indicator of inflation) fell by 0.2% last month, against market forecasts of a 0.6% rise.

The annual rate slowed from 15.2% to 13.5%. Producer prices rose by 0.3% in December and by the same month last year rose by 9.3% against 9.4% in November, marking the first slowdown of this indicator since September 2020.

The producer price contribution to inflation is becoming smaller due to the correction of commodity prices. An important factor of uncertainty is the contribution to output prices of rising wages. The fight against rising wages will require the Bank of England to raise rates until the economy is under stress. But the financial markets will have to take the hit first, adjusting from current levels.

 

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