CPI provides the good news that sterling desperately needed

19th January 2016 By: Ranko Berich

CPI data – 19/1/16

This CPI data comes at a critical time for sterling and suggests that things in the UK economy may be going according to plan after all. Headline CPI is creeping up as hoped and Core CPI actually provided a badly needed upside surprise.

The detail of the report provides a broadly positive outlook, with the majority of price categories showing year on year growth. It was food prices that actually proved the biggest drag on inflation, which is more a sign of stiff competition in the supermarket sector than stagnating demand in the economy.

December’s CPI data points towards a modest but genuine improvement in the inflation picture, and if things keep improving and commodity prices bottom out, the Bank of England could end up raising rates this year after all.

GBPUSD has been flirting with disaster recently and only just avoided falling below lows from 2010 early this morning, so this good news could not have come at a better time. If Wednesday’s Average Earnings data is similarly positive, we could finally see a reversal in sterling’s fortunes.