Sterling soars to seven-year high on surprise inflation rise

The consumer price index increased 0.1% in July, down from a 0.3% rise the previous month, the Labor Department said Wednesday.

Last year the core inflation index increased by 1.6% and growth of the basic index made up 0.8%.

Core inflation – which takes away external factors such as energy and food prices – was up to 1.2% from 0.8%, and that core inflation increase could trigger an earlier increase in rates.

In the 12-months through July, the CPI climbed 0.2 percent.

The UK’s inflation rate nudged up from zero to 0.1 per cent in July, official figures showed on Tuesday.

Nationally, the U.S. headline Consumer Price Index increased at its slowest pace in three months.

Falling oil and gas prices, however, offset much of those increases elsewhere. A sharp rise in sterling against a basket of other currencies in recent months is also expected to bear down on inflation for some time.

While the U.S. job market has been putting in solid numbers, the counter-argument against raising rates is that inflation is still very low. She notes, for example, that West Texas crude is now off 56% from a year ago, gold has fallen by 15% over the last 12 months, copper is down 27%, and sugar has slipped by close to 35% in the past year.

The Reserve Bank of Australia released minutes from its latest meeting, where rates were held at 2%.

But, while Brettell believes the number today will increase speculation that the Bank may move to raise rates later this year instead of next, it is unlikely to happen.

The largest upward contribution “by far” was made by clothing and footwear, where prices dropped by 3.4 per cent between June and July this year, compared to a 5.7 per cent fall in the same period a year ago. However, airline fares fell 5.6 percent, the largest decline since December 1995. Housing inflation continued to rise in June to 6.5% y/y, though pressure appears to be waning in Q2.

However, Yellen said the Fed doesn’t necessarily need to see inflation accelerate to hike rates, but simply must be reasonably confident it will pick up in the medium-term. “With price inflation and wage growth still muted, a case can also be made for waiting”.