Inflation remains below target

Wednesday saw the release of the minutes from the last Bank of England interest rate meeting. As much as last month's vote split on whether to change UK interest rates caught a few analysts offside, the repeat of the result on Wednesday was probably anticipated. The previous month’s dissenters reiterated their view that rates should rise by 0.25%; the other seven remained in the no camp. Mark Carney was recorded as continuing to believe that there is insufficient evidence of inflationary pressures to warrant a rate rise, and looking at today's inflation data from around the globe, that view would seem to have some credence.

Inflationary pressures often start with wage inflation and on Wednesday the UK reported that average weekly earnings for the past 3 months rose by 0.6%. On this evidence there is still limited signs of wage inflation despite the employment level falling once again from 6.4% to 6.2% in July.

The lack of inflationary pressures in other major developed economies also remains evident, in the euro zone on Wednesday year on year inflation for August came in at 0.4%. In the US the latest consumer price inflation data reported a fall in consumer prices month on month in July. The US consumer price index rose 1.7% year on year in August, a decline from 2% in August.

Last but not least the Federal Reserve's two day meeting left rates unchanged and the much-anticipated accompanying policy statement stuck to previous scripts maintaining the phrase “considerable time”. The market interprets this phrase, as signalling rates will stay close to zero until the middle of next year.  

The recent fall in oil prices will have helped reduce inflationary pressures, but despite central bank's monetary policies, Wednesday data shows inflation remains below many developed central bank's target levels. In what is seen as a response to weaker than expected economic data The Peoples Bank of China became the latest central bank to add liquidity to its economy by injecting $81bn into its banking system. By today's standard, it is a modest sum, but probably continues to demonstrate their commitment to ensuring the economy remains on target to grow at 7.5% in 2014.

For those who wish to keep up with the latest betting odds, Paddy Power are now offering 7/2 on a yes vote and 1/5 on the no vote, the bookies seem fairly convinced the “no” vote will win the day.

Posted on September 18, 2014 .