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Investors waiting for inflation signs.

 

Inflation

UK inflation is expected to have eased again in December, following the trend in the eurozone and the US.

Economists polled by Reuters forecast the annual rate of the UK consumer price index, due to be released on Wednesday, to have declined to 10.6 per cent in December. That is a touch lower than the 10.7 per cent in November and would mark the second consecutive slowdown from a 41-year peak of 11.1 per cent in October.

Samuel Tombs, an economist at Pantheon Macroeconomics, expects the decline in the headline figure to be partially driven by a drop in motor fuel inflation and some further easing in core inflation, which strips out the more volatile energy and food prices. These trends «would encourage the Monetary Policy Committee to end its tightening cycle soon», he said.

In the US, December’s consumer inflation slowed to its lowest level in more than a year and dropped more than expected in the eurozone on lower energy price growth.

Susannah Streeter, a markets analyst at Hargreaves Lansdown, said she hopes UK inflation will mirror those movements but warned: «the tight jobs market and relentless rise in food prices are likely to mean it stays stickier for longer».


Recent weeks have seen a flurry of «reopening rallies» for commodities on the back of expectations that the current end of China’s zero-Covid policy will boost economic activity. But high-profile data released this week — including gross domestic product figures out tomorrow — could give investors pause.

Economists at Goldman Sachs have forecast year-on-year growth for China of just 1.7 per cent in the fourth quarter of last year, implying a full-year increase of only 2.6 per cent. This reflects the continued drag from Covid-19 curbs early in the period and the negative impact of ending those measures, which led to hundreds of millions of infections in weeks.

But an earlier signal on China’s economic health will arrive today when its central bank announces its monthly decision on the one-year medium-term lending facility rate, which acts as the floor for the country’s benchmark rate. With most economists expecting the People’s Bank of China to stand pat, any move to ease by the bank could catch markets by surprise.

Oil is at a crossroads. After starting the year on the back foot, with Brent crude falling below $80 a barrel in the early days of the new year to hit lows not seen since the invasion of Ukraine, crude has ground higher again to finish this week close to $85 a barrel.

There is a clear divide in the market. Some see signs of a demand-sapping recession capping crude’s ability to rally this year. Russian crude oil export volumes have also broadly held up, despite western sanctions becoming tougher in December. But some see oil’s recent pullback as a buying opportunity, with the market at risk of becoming complacent following a volatile 12 months.

Further EU sanctions will bar the import of Russian refined fuels in February. However, Opec, which publishes its monthly oil market report tomorrow, and its allies have indicated their willingness to stop prices from falling too far.

China’s reopening and the end of its strict zero-Covid policy should boost demand growth this year. In addition, US releases of strategic oil reserves, which helped calm the market following Russia’s invasion, have ended.

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Comments

  1. Annie16 January 2023 at 14:58

    Yes we should see a decline in the numbers but it won't be too big I think. There's still a long way to go before we can see decent numbers.

    ReplyDelete
  2. Stewart16 January 2023 at 18:17

    10.6 should be what we see on Wednesday which is ok but nothing to write home about. More needs to be done so we can have constant declines in the following months.

    ReplyDelete

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