Talking Points:
- The British Pound traded higher versus other major currencies
- UK’s Core CPI at +1.5%, better than the expected +1.3%
- Headline CPI rises to +0.5% year-on-year from the prior +0.3%
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The British Pound traded higher before leveling out versus other major currencies (at the time this report was written) after the UK’s Consumer Price Index (CPI) figures released today showed inflation hit 15-month high in March. Headline CPI showed an annual rise of +0.5% percent, above the expected +0.4% figure and the prior +0.3%. The month on month figure printed +0.4%, above the prior +0.2%, and the expected figure of +0.3%. Core CPI, which excludes volatile factors such as food, energy, alcohol, and tobacco, came at +1.5%, higher than the expected +1.3% and the prior +1.2%.
Looking into the report, the Office for National Statistics said that rises in air fares and clothing prices were the main contributors to the increase in the rate between February and March, and were partially offset by a fall in food prices and a smaller rise in petrol prices than a year ago. The rate remains relatively low in the historical context.
The figures hit the wires two days prior to the next Bank of England (BoE) rate decision in which the central bank is expected to keep policy unchanged. Inflation figures are a key measure for the BoE in deciding monetary policy, and while the Central Bank is still far from their 2% inflation target, the figures are signaling a pickup in inflation.
In this context, the better than expected figures may be seen as contributing to a more hawkish outlook for the BoE in a need to normalize policy sooner than the market expected, as was recently mentioned by DailyFX Currency Analyst David Song. The British Pound has been trading higher prior to the report, perhaps in anticipation of positive data, and rose once the figures hit the wires before leveling out slightly after.
GBP/USD 5 Minute Chart: April 12, 2016
--- Written by Oded Shimoni, DailyFX Research
