CPI Inflation Positive

CPI Inflation Positive.

The Office for National Statistics has released inflation figures for July 2015 confirming that Consumer Prices Index (CPI) rose to 0.1%. This followed June's flat rate of inflation of 0% with inflation overall remaining low for the last year.

The increase for July has been attributed to increased clothing costs although prices for other items such as oil and food have fallen again keeping inflation at historically low rates. Given the slowdown in demand from China raw materials we can actually see oil prices remaining low which will again keep inflation low for the next few months and we could even see a move back to “flat lining” or even deflation i.e. negative inflation as we saw in April this year.

Deflation is a very dangerous matter for the economy. If prices are falling, people will postpone spending their money as they can purchase their goods and services next month at a cheaper price.

The Governor of the Bank of England, Mark Carney, suggested that interest rates would likely be increased in the first few months of 2016. This has prompted many people to revisit their mortgages with a view to locking into low interest rates. The above continued low inflation figures almost certainly mean that the UK will not see interest rate increases until the New Year.

Although, we expect the UK to follow the US with interest rates. In simplistic terms, if you see the Federal Reserve increase interest rates, expect the UK to do the same within one or two months.

Warning for stock-market correction

A global slowdown of world economies is predicted given that we have had a "bull market" for the last seven years, which is the second longest continuously growing stock market since the 1920s. This was followed by a stock market crash and the "Great Recession".

Likewise, we have seen that the current positive/bull market runs in the 1980s. Do you remember "Black Monday" and the late 1990s for between five and six years which again resulted in stock-market crashes? This is where we think we are today.