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Inflation rises on ‘double whammy’ of oil prices and weak pound

A “double whammy” of oil prices and sterling weakness has seen consumer inflation rise from 1.6 in December to 1.8 per cent in January.

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Feb 14, 2017
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Sterling fell on the the news, which was slightly below the 1.9 per cent consensus expectations, as the figure suggests the Bank of England’s Monetary Policy Committee won’t be in any hurry to raise rates from their current low of 0.25 per cent.

Director of research at ETF provider WisdomTree Viktor Nossek says: “There is a double whammy of ‘bad’ inflation coming through in the UK from both energy and food and this has caused a sharp jump in CPI over the last few months.”

However, Nossek does not expect inflation to reach much higher than 2 per cent as he believes the oil price lacks momentum – despite production cuts from Opec and non-Opec nations.

Investment director at AJ Bell Russ Mould points out that in March the Bank of England will start incorporating owner occupier housing costs and Council Tax into its inflation figures.

This figure, the CPIH, already sits at the 2 per cent target set by the Bank’s monetary policy committee.

Mould says: “While this is unlikely to have Governor Carney and the Bank of England MPC scurrying to raise interest rates straight away, the influence of house prices and housing costs may be a further factor to consider, even if their preferred measure, the ‘core’ CPI figure, remained unchanged in January at 1.6 per cent.”

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