The above graph shows that services inflation is the main culprit keeping core CPIH in an uptrend. Core CPIH dropped from 6.5% in May to 6.4% in June. Since May was a 30-year high, I am particularly unimpressed by the “pullback” in the core inflation rate. The Core CPI (Consumer Prices Index) dropped from 7.1% in May, a 31-year high, to 6.9% in June.

Food and energy inflation is coming off extreme levels. Food inflation is coming off a peak 19.2% in March, 2023. Fuel prices are outright plummeting, falling 13.1% in May and 22.7% in June.

The British Pound Cools with Inflation

The cooling overall inflation numbers cooled the heels of the British pound which has been on quite a streak since the bond and currency crisis 10 months ago. GBP/USD, also Invesco CurrencyShares British Pound Sterling Trust (FXB), was falling off a near 16-month high coming into the inflation print. The inflation report greased the skids on the way to an important test of the uptrending 20-day moving average (DMA). That line has held as support since the beginning of June and has been important support since early March.

Source: TradingView.com

For now, I am trading for a bounce from the 20DMA and prepared to to accumulate a larger position for a test of 50DMA support. The overall drivers of sterling strength seem intact as long as core inflation is uptrending or even just sticky. The Bank of England will have to remain as hawkish as ever.

Of course, the upcoming meeting of the U.S. Federal Reserve is a major wildcard. If the Fed manages to get hawkish enough to scare some fresh strength into the U.S. dollar, then I will have to drop my current trading strategy.

Regardless, the uptrend in the pound should at some point end in the coming months. This recent weakness in the currency could be the beginning of the end.

Be careful out there!

Full disclosure: long GBP/USD

The post Is the British Pound Topping Despite Lingering Strength in UK Core Inflation? appeared first on Inflation Watch.

Inflation racing ahead of wage gains was cited as one of the most important factor contributing to this historic decline. Lower interest rates for savings had a large impact on the standard of living for retirees.

Deflation on earning power and inflation in the cost of household purchases has placed a double squeeze on UK residents. In this context it is interesting to note Bank of England governor Mervyn King lamentations during last month’s conference call to defended monetary policy in the latest Inflation Report. King partially defended the on-going accomodative monetary policy in the face of inflation stubbornly above the inflation target of 2%. King asserted that the recession was going to reduce the standard of living either through deflation of wages (impact from the economy) or the increased prices of purchased goods (impact from monetary policy). In his view, this adjustment appears inevitable. However, this recent study by the IFS seems to suggest that in trying to choose the “least bad” option, the UK may end up stuck swallowing both bad options.

The post Inflation cited as major factor in historic decline in UK standard of living appeared first on Inflation Watch.

The post 7.5B pounds of investment targeting UK residential development appeared first on Inflation Watch.

See “U.K. Inflation Unexpectedly Exceeds 3% on Air Fares, Food” for more details.

The post Airfares in the United Kingdom Surge At A Record Pace appeared first on Inflation Watch.

The post A surge in supply drives down UK property monthly prices for first time in 2010 appeared first on Inflation Watch.

“…annual gains were registered in all categories, suggesting many manufacturers are taking advantage of the recent pick-up in growth to pass on at least some of their higher energy bills.

Core producer output price inflation, which strips out food, beverages, tobacco and petroleum products, rose by an annual 3.6 percent, its highest rate since February 2009.”

When including energy and food prices, producer prices soared twice as high as expectations to 0.9%. The annualized increase of 5.0% has not been this high since November, 2008.

The Bank of England is betting that inflationary pressures will subside later in the year given spare capacity in the economy. Skeptics are growing…

The post Inflation threat may be rising in the United Kingdom appeared first on Inflation Watch.

The Bank of England continues to expect a “…a slow recovery in the level of economic activity” partially because “…it is likely that credit conditions will remain restrictive for some time and that the need to strengthen public and private sector finances will weigh on spending.”

Moreover, the BoE maintained its forecast for low inflation for the next three years claiming that “…it is more likely than not that inflation will be below the target [2%] for much of the forecast period, but the risks are broadly balanced by the end.” (The forecast ranges from -1% to 5%).

Given these conditions, the Bank of England will be in no rush to tighten (significantly) monetary policy anytime soon.

The post Bank of England sets stage for maintaining easy monetary policy appeared first on Inflation Watch.

The pound even spiked against the U.S. dollar on the CPI news before quickly selling off.

The post U.K. December CPI Hotter Than Expected appeared first on Inflation Watch.

Recall that housing prices in London already set fresh all-time highs this year.

(See Marketwatch article for more details)

The post UK Housing Prices Up 9% from Low But Remain 12% Below 2007 Peak appeared first on Inflation Watch.

In the UK, the difference between gilt yields and those on inflation-linked paper rose to 2.25 and 2.82 per cent respectively on five- and 10-year paper – the highest readings since immediately after the Lehman Brothers collapse.

Given that housing prices in London recently hit new all-time highs, we should not be surprised that more Brits are joining those of us on inflation watch on this side of the Atlantic…

The post Inflation Expectations On the Rise in the United Kingdom appeared first on Inflation Watch.