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Tentative signs of rising inflation

Wednesday, February 17, 2021

We are seeing tentative signs of rising inflation in the UK with January’s Consumer Prices Index (CPI) print rising 0.7% over the year, on the back of a 0.6% increase seen in December. But this is still a long way short of the 2% Bank of England target and hardly a cause for concern in the short term. While some household goods and food costs increased, there is still widespread disinflation and even deflation in clothing prices as shoppers were forced to stay away from stores due to the current lockdown. Pockets of inflation will continue to surprise and it is more than likely that we are at the nadir of the inflation cycle – if we are to move into the hoped for recovery for the UK economy then this reflation, by definition, will be inflationary if only for a transitory period and that won’t bode well for sovereign bond holders.

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