Inflation remains at -0.1%

Tuesday’s figures are unlikely to sway Bank of England policymakers as the consider when to raise interest rates from their record lows, but there was a slight uptick in core inflation that pushed sterling higher against the dollar. The decline was driven by lower prices for food and drink and a smaller rise in university fees than a year earlier, the ONS said. Firstly, inflation has been lower for longer than Threadneedle Street imagined at the start of the year.

The slight increase in consumer prices was in line with economists’ expectations.

Maike Currie, associate investment director, Fidelity worldwide agreed that a few of the key deflationary influences will wane from here:”For now the UK’s weak inflation rate is largely due to external factors – persistently weak global demand and a strong pound pushing down commodity prices”.

The consumer price index measure of inflation has hovered between 0.1 per cent and minus 0.1 per cent for the last eight months – taking out of the equation the 2 per cent target that the Bank uses to set the bank rate. Food costs edged upward, but the real gains were found in shelter and medical care. Fed Chairwoman Janet Yellen and other officials have said stronger inflation could signal the economy is finally healthy enough to absorb higher interest rates.

Inflation has been at or close to zero for most of this year and first dipped into negative territory in April when prices fell for the first time in more than 50 years.

The interest rate futures in the USA implied there was a 70% change of a rate hike in December up from the 68% posted on Monday. Rent just keeps increasing and this month rent jumped by 0.3% and is up 3.7% for the year.

Falling prices have not spread to the housing market, however, as United Kingdom property prices rose 6.1 per cent in the year to September, up from 5.5 per cent the previous month.

Last month, gasoline prices rose 0.4 percent after falling 9.0 percent in September. While food prices rose marginally, four of the six major grocery store food group indexes increased, with cereals and bakery products posting the largest increase since August 2011. Likewise, the core service is increasing at a pace of 0.3%m/m.

For the 12-month period through the end of October, the core CPI has move up 1.9% after rising the same margin during September.

He continued, ‘Investors should acknowledge that despite this being the weakest spell of inflation in more than 50 years, from November onwards, the market expects to see inflation rise as the impact of last year’s steep fall in the oil price begins to work its way out of official calculations.