UK inflation slowed unexpectedly last month, but the slight decline is not expected to deter the Bank of England from raising rates, possibly as soon as next month. Consumer prices rose 3.1% in annual terms in September, easing back from 3.2% in August. However, the Office for National Statistics stressed that the downward shift was partly due to the unwinding of the government’s Eat Out to Help Out discounts. Inflation is expected to rise further next month due to the rise in energy prices. In an interview with BBC breakfast this morning, Business Secretary Kwasi Kwarteng urged calm on the inflation threat saying he was “confident it will be contained, but we will have to wait and see”. Sterling showed little reaction to the data, down slightly from yesterdays close.
The euro has pulled back from the 3-week high it hit against the dollar yesterday. Inflation data out of Germany this morning showed a rising trend in price pressures across the board. ECB policymaker Francois Villeroy has reiterated his view that the inflation spike is expected to be temporary. Markets will now focus on inflation data for the Eurozone when the consumer price index for the bloc is released later today.
US 10-year treasury bond yields pushed higher on Tuesday gaining more 2% and helping the dollar stay resilient against its peers. This trend has continued this morning with the greenback trading at a near 4-year high against the yen as a result. Later today the Federal Reserve bank will release its Beige book which reports on the current economic situation in each of the 12 Federal Bank’s districts.
10.00 am EUR Consumer Price index 18.00 pm US Federal Reserve’s Beige Book