UK inflation (CPI) saw its biggest fall in January to a record low of 0.3%. This is the lowest reading since records began. As we have been speaking about for quite a while, one of the main contributing factors is the dramatic fall in crude that we have witnessed since June of 2014. This has helped to lower prices of fuel at the pump which has contributed to lower food prices amongst other goods and services.
The Bank of England stated that inflation may fall in the spring. When you take out food, alcohol, tobacco and fuel, core inflation actually rose in January from 1.3% to 1.4% which shows that the U.K is far from a deflationary period. It is a very good result for the consumer; motorists are literally filling up their vehicles for half the price.
The Pound sold off against a basket of other currencies in response to the reading, as much to do with profit taking than a change in interest rate expectations. German investor’s sentiment was running high as the Zew investor confidence survey rose to its highest level since February 2014, up 4.6 points to 53.0. ECB Quantitative easing or QE for short, falling oil prices and an economic growth in the fourth quarter of 2014 which surprised to the upside was amongst the reasons for the improved sentiment .
There were some negatives, the new government in Greece which have indicated that they do not want a bailout, instead they would like to see their sovereign debt wiped clean, a potential leaving of the Euro Zone which has the potential to spread contagion to other ECB members, and the ongoing crisis in the Ukraine. Just as with the Pound, Euro saw weakness amongst most other currencies, one of the exceptions being the U.S Dollar.
Looking forward, RBNZ Governor Graeme Wheeler speaks in Auckland today on economic policy and the health of the New Zealand economy , and tonight in the U.K we see Jobless claims data with expectations for a lower unemployment rate .