British inflation eases

Economists said after the referendum on Brexit that a temporary spike in the inflation rate could be expected due notably to the British currency depreciation.
That’s what has happened with a peak in November 2017 at 3.1%. After this date, the inflation rate is receding at less than 2.5% in March 2018. The core inflation rate has followed the same profile with a current rate at less than 2.3%.
uk inflation rate.png
The price index in the Markit survey for the UK is a good leading indicator of the inflation rate. The index leads the inflation rate by 6 months. If we follow the relationship between the two indicators that has worked  for the last 20 years then we can infer that the inflation rate will continue to recede.
uk-inflation-markit.png
What will happen on monetary policy side? As the inflation rate will converge to 2% during the year 2018 the best strategy for the BoE is to keep its current policy unchanged. It will also be positive for the economic activity.

One thought on “British inflation eases

  1. Pingback: The rules of the game have changed for the emerging countries | Philippe Waechter's blog

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