Lower UK PPI Validates BoE Inflation Target
THE TAKEAWAY: UK PPI output drops 0.4% in June, lower than expected -> Dropping prices validate BoE inflation target -> Cable corrects higher
UK factory output prices fell for the second straight month, indicating that BoE predictions for inflation to fall under 2.0% in 2012 could be accurate. The Producer Price Index for output dropped 0.4% in June, lower than analysts’ expectations for the index to drop 0.2% for a second month.
Petroleum products prices dropped 3.3% in June for the second month in a row, while food, beverages and tobacco prices were up 0.1%. Raw material input prices also dropped 2.2% in June.
Just yesterday, the Bank of England raised their stimulus program to 375 billion pounds at their July meeting, where they predicted that inflation falls under 2.05 by the end of 2012.
The lower than expected PPI didn’t noticabely affect today’s light trading. Cable corrected slightly higher in the hour before the release, reversing a small part of yesterday’s drop from 1.5600 following the ECB rate cut announcement.