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UK pours cold water on inflation narrative

Wednesday, March 24, 2021

Just when the dominant market narrative was for higher inflation expectations, the UK poured cold(er) water on that theory. February’s Consumer Prices Index (CPI) print slowed against expectations, rising 0.4% year-on-year (almost half the expected amount). It perhaps should not be too surprising that clothing prices fell - who after all is really dressing to impress in a lockdown and retailers that can maintain an online presence will be heavily discounting prices to attract some attention. Only when we return to a more normalised and open economy can sharply higher inflation surprises manifest and, even then, that is not a given. I do not think the inflation genie is out of the bottle just yet.

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