United Kingdom inflation sticks at almost six year high in January

United Kingdom inflation sticks at almost six year high in January

The Fed said in December that it anticipates three interest rate increases in 2018, and newly seated Fed Chair Jerome Powell hinted Tuesday that the central bank would not deviate from those plans going forward, so long as the market shows signs of continued growth.

The consumer price index rose 0.5 percent on a sequential basis, leaving the year-on-year rate stable at 2.1 percent.

This prompted markets to price in as much as a 70% chance of a quarter-point rise in interest rates by May.

The U.K.'s consumer price inflation remained at 3 percent in January, beating expectation of economists, according to the Office National Statistics (ONS).

Clothing prices helped to prop up the inflation figure despite having fallen 3.7 per cent month on month, which marked a weaker drop compared to the 4.3 per cent fall during the same period a year earlier.

"However, elevated fuel prices and the base effect will keep CPI inflation in the vicinity of 5% for the rest of the year till March", said Madan Sabnavis, chief economist at Care Ratings, adding that cooling food prices will have a calming effect on retail inflation.

Excluding the volatile food and energy components, the CPI shot up 0.3 percent, the largest increase since January 2017.

Inflation has now remained above the Bank of England's (BoE) 2% target for 12 months in a row.

"While the door remains open for a May interest rate hike, the Bank of England will likely need to see indicators of the economy's health improve to be sufficiently reassured that the economy is ready for another rise in borrowing costs".

"This was 0.24 per cent points lower than the rate recorded in December (15.37 per cent), making it the 12th consecutive slowdown in the inflation rate though still positive in headline year-on-year inflation since January 2017".

Analysts had however expected the January print to show a slightly lower rate of inflation at 2.9 percent.

Such increase in factory outputs would lead to an increase in inflation rate and in return would boost the economy of the nation.

United Kingdom manufacturers increased the prices they charged by 2.8%, less than the consensus forecast of 3% and the smallest increase since November 2016. That raised concerns the US Federal Reserve would raise interest rates faster than previously thought.

Although the volatile nature of food and fuel prices makes predicting the exact path of headline inflation hard, core inflation will continue to accelerate further in the coming months, the economist noted.