Retail inflation eases to 5.07 percent in January

Spencer Platt via Getty Images

United Kingdom inflation remained at 3% in January, the same level as in December, as reported by the Office for National Statistics, ONS.

The dollar .DXY rallied against a basket of currencies.

However, the fact that the central bank did not raise the repo rate in the face of hardening inflation as recommended by one of the six monetary policy committee (MPC) members is being considered as an attempt to aid in economic recovery. Economist said the robust trend in factory output augured well for overall growth.

"The worry of the markets is not that inflation is becoming a big problem, .it is that the Fed is now forced to play catch up at the same time they are shrinking their balance sheet", said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

It stated that the rural index also rose by 0.77 per cent in January 2018, up by 0.23 per cent when compared with 0.54 per cent in December 2017.

Downward pressures on prices over the past year include motor fuels, which rose by less than they did a year ago. Thereafter, CPI readings could touch 6 percent by the summer. "The high 16.5 per cent growth of consumer non-durables in December 2017 was augmented to a considerable extent by the sharp 88.4 per cent expansion in output of digestive enzymes and antacids, with a weight of just 0.2 per cent in the IIP", Aditi Nayar, Principal Economist, ICRA said.

Over the same period, inflation, as measured by CPI was 2.7 per cent and was four per cent as measured by RPI. The Fed tracks a different index, the personal consumption expenditures price index excluding food and energy, which has consistently undershot the central bank's 2 percent target since mid-2012.

Economists said the stubbornly high inflation in January meant United Kingdom households were faced in the near-term with falling living standards and rising mortgage bills.

Digestive enzymes and antacids, which have a 0.22 per cent in IIP, continued to be the top contributors for the IIP growth in December, followed by cement, electricity, diesel and two-wheelers.

UK CPI unexpectedly holds at 3.0 pct in January * BoE aiming to return CPI to 2 pct target in 2 years * Manufacturers facing less pressure from raw material costs * Core inflation and cost of services picks up (Adds reaction from economists and markets) By David Milliken and Andy Bruce LONDON, Feb 13 (Reuters) - British inflation unexpectedly held close to its highest level in almost six years in January, highlighting the challenge facing the Bank of England and reinforcing expectations of a rise in interest rates in May. Price pressures are also seen being fanned by fiscal stimulus in the form of a $1.5 trillion tax cut package and increased government spending.

ONS senior statistician James Tucker said: "Headline inflation was unchanged with petrol prices rising by less than this time past year".

Capital goods shot up 16.4% in December compared with a 6.2% contraction in the year-ago period.

While retail inflation was 5.21 per cent in December 2017, the Index of Industrial Production (IIP) had grown at an impressive 8.8 per cent in November.

"Apart from oil prices, monsoons will be the key factor for inflation".

If prices come in 1.9 or 2 percent higher, "that will then, I think, kick in perhaps another episode of what we saw last week", Curran added.

The core CPI was boosted by rising rents.

Prices of new motor vehicles slipped last month and the costs of recreation, communication and alcohol were unchanged.

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