Persistent elements of December’s UK consumer price environment will likely raise concerns among monetary policymakers despite a small drop in the cost of living, according to analysts.  

Last month’s annual consumer price growth of 10.5% was in line with estimates, down two-tenths form November and four-tenths below the 10.9% the Bank of England had earmarked at the last Monetary Policy Report in November. The annual core reading of 6.3% eased a tenth below last month’s print and estimates., and Sn the month, CPI was 0.4%, in-line with estimates and the prior reading.  

The Office for National Statistics reported that prices at the pump fell notably in December, with the cost of clothing also dropping slightly. However, this was offset by increases for coach and air fares as well as overnight hotel accommodation.  

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Guidance from European Central Bank President Christine Lagarde that borrowing costs will continue to be lifted in half-point steps for some time still holds, according to Governing Council member Francois Villeroy de Galhau.

Speaking to Bloomberg TV at the World Economic Forum in Davos, the Bank of France chief said it’s too soon to talk about the size of the likely interest-rate increase in March, after people familiar with officials’ thinking told Bloomberg that moderating inflation and declining energy prices may warrant a smaller hike.

“We said very clearly we still decide meeting by meeting, we are data driven, so it’s much too early to speculate about what we will do in March,” Villeroy said. “Let me remind you of the words of President Lagarde at her last press conference in December: We should expect to raise rates at a pace of 50 basis points for a period of time. Well, these words are still valid today.”

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The Bank of Japan on Wednesday maintained ultra-low interest rates, including a bond yield cap it was struggling to defend, defying market expectations it would phase out its massive stimulus programme in the wake of rising inflationary pressure.

The surprise decision sent the yen skidding against other currencies as investors unwound bets they made anticipating the central bank would overhaul its yield control policy.

At a two-day policy meeting, the BOJ kept intact its yield curve control (YCC) targets, set at -0.1% for short-term interest rates and around 0% for the 10-year yield, by a unanimous vote.

(Continue Reading - Reuters)