The Office for National Statistics said annual UK consumer prices index (CPI) inflation had risen to 0.1 per cent in July, from zero in June, albeit way adrift of the two per cent target set for the Bank of England by the Treasury.
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“While the hawks may choose to focus on the unexpected 0.2% monthly increase, the doves have an equally fueled argument to urge patience as the annual rate of inflation reaffirms a deflationary scenario”, she said.
Richard Campbell, ONS head of CPI, said July marked the sixth month in a row when headline inflation had been at zero or close to it. That index was up 1.8 percent from July 2014, after advancing 1.8 percent in the year through June.
The CPI rose just 0.1% in July, below the 0.2% expected and down 2 ticks from June.
The U.S. central is expected to raise its short-term interest rate next month.
He adds: “The Bank of England has started to question how long interest rates can remain at current record-low levels, but in our view, is unlikely to hike rates before CPI inflation returns to at least 1 per cent, which may not happen before the second quarter of 2016″.
The latest rise is against the longer-term trend, which has seen house price inflation gradually falling since it peaked at 12 per cent last September. We expect CPI inflation will average 3.5% this year.
These factors have been holding inflation down amid a plunge in the world oil price and a supermarket price war as major grocers vie to fend off the threat of discounters Aldi and Lidl. Shelter prices are up 3.1% from a year earlier.
The solidified core index could give Federal Reserve policy makers confidence that inflation has stabilized in deciding when to begin raising interest rates for the first time since 2006.
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Halifax executive Stephen Noakes said: “House price growth remains robust notwithstanding the easing in July”. An economic slowdown in China and Europe has also curtailed global demand, which can limit price increases. “With price inflation and wage growth still muted, a case can also be made for waiting”. The benchmark 10-year jumped to 2.207% before slipping back to 2.196% by 8:55 a.m.ET. The increase reflects only slight inflation and increase average hourly pay and hours worked.
