More rate cuts could be in store as core inflation eases

CPI Inflation Eases Further To 2% On Falling Food Prices

- Inflation falls below target in January for first time in two years.

Inflation was dragged lower as a steep decline in oil prices that took place late past year appeared in petrol prices charged at the pumps, while Ofgem's new energy price cap was also seen weighing on the index.

"On the downside, we see the most significant support line at 1.1295: we note last month's low, the Fibonacci 61.8% one-day, and the PP one-month Support 1, all substantial lines", he added further.

The food price inflation rate in November had declined to 2.65%.

- As petrol and Ofgem cap weigh on main consumer price index.

Those differences may disappear as slowing economic activity is set to drag core inflation down and also as the pass through impact from food and fuel prices fades.

"The implication is that second round effects are much more muted, and shocks to food and fuel prices do not propagate as strongly into core inflation", JPMorgan economists Sajjid Chinoy and Toshi Jain wrote in a recent note.

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"The further falling back in inflation facilitates the Bank of England maintaining a "wait and see" approach on interest rates until after the United Kingdom leaves the EU", Howard Archer, chief economic adviser to the EY ITEM Club consultancy, said.

'That said, sadly it is still the case that many savings accounts are paying less than inflation - particularly older accounts and those held with the high street banks.

Figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) fell to 1.8% last month, the largest drop since 2016, from 2.1% in December.

Clothing and footwear prices had a small downward pull on inflation with prices falling by 1.3 per cent for the year to January.

India's consumer prices rose at a milder pace than anticipated in January and remained below the Reserve Bank of India's target for a sixth straight month, strengthening views it could again cut the key interest rate at its next policy review in April.

However, he added: "If there is a no-deal United Kingdom exit from the European Union at the end of March, the inflation outlook will be clouded by a number of factors - most notably what happens to sterling, how well the economy holds up and what tariffs come into effect". The fall in the value of the pound after the Brexit vote had pushed inflation higher, squeezing household disposable income as it pushed up the cost of imported goods.

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