Inflation Falls June 2017 A Red Herring

Published / Last Updated on 18/07/2017

Inflation Falls but it is just a 'red herring'?

The Office for National Statistics has released lower inflation figures for June 2017, after hitting high that had not been seen for 4 years in May.

The Consumer Prices Index (CPI) 12-month rate was 2.6%pa in May 2017, down from 2.9% in April.

The Retail Prices Index (RPI) measure of inflation fell back to 3.5%pa in June, from 3.7%pa (5 year high) the month before, but only back to its April level of 3.5%pa. 

This surprise fall in inflation was mainly due to slightly lower fuel prices.

This triggered a weakening of sterling, as pressure on the Bank of England reduces to increase interest rates and broadly follows suit with the USA with inflation lower and pressure to increase interest rates there also lowering.  As you may guess, respective stock markets in the UK and US went up

Comment

All smoke.  Through July oil prices have been rising again, so expect potentially higher inflation figures for July (published in mid-August) and therefore expect the pound to strengthen with threats of interest rate increases and therefore stock market falls.  We are still walking along that ‘tight rope’ we think.

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