United Kingdom – Last exit before inflation

The rapid improvement of retail sales in February (+1.5%) has to be interpreted with care. The retail sales momentum has deeply changed in recent months. After a strong recovery since the end of 2013, its profile has dramatically changed last fall. Since the peak of October 2016 the  trend is still robust but downside oriented. Households continue to spend as far as inflation is not too high.
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In the United Kingdom, inflation is back. The core inflation rate was at 2% in February. Its highest level since June 2014. The interesting point is the food price index trajectory. From the end of 2013 to October 2016, it was decreasing. But since October it recovers rapidly. In October the yearly change for food price was -2.4%, in February it is +0.17%. What is impressive is the upturn since last fall and what is important is the acceleration. This is linked with the sterling depreciation.  Continue reading

Higher inflation in the Euro Area is here to stay

The inflation rate for the Euro Area (flash estimate) was at +0.4% in September. It is the highest since October 2014. In August the inflation rate was at 0.2%. The core inflation rate was stable at 0.8%.
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The explanation has to be found in the oil price profile. I explained that in a post in August (see here). Continue reading

Oil Price and Inflation – Rupture

Currently, the most important graph is the price of oil.
Last week, the oil price was above its level of August 2015. The oil price has started to fall at mid-2014. Since this moment, the oil price was always below the level it had one year before. this has changed last week. It’s the first time since 2014 that we see such a crossing.
This means that the energy contribution to the inflation rate will rapidly tend to 0 and if the price remains close to 50 the contribution will become positive. Therefore the inflation will rapidly converge to the core inflation rate. It will still be below central banks’ target (2%) but it is an important step. Continue reading