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6 Jan 2015
UK inflation to remain sub 1% till Q4 2015 – GS
FXStreet (Barcelona) - The Goldman Sachs Research Team forecasts UK CPI inflation to fall well below 1%yoy in the coming months and remain below 1% until 2015Q4, when base effects might drive it higher.
Key Quotes
“While too-high inflation was viewed by many as a key risk this time last year, too-low inflation appears a bigger risk for 2015. Headline CPI inflation fell from +1.3%yoy to +1.0%yoy in November and, barring a significant surprise, we expect inflation to have fallen below 1.0% in December, requiring Governor Carney to write a letter to Chancellor Osborne explaining why inflation is so low.”
“We expect the December reading to be the first of many below 1%. Much of the impact of the fall in oil prices seen in recent months has yet to feed through to consumer prices and we expect fuel prices to knock a further 0.5pp off headline inflation in the coming months.”
“With underlying inflationary pressures also appearing subdued, our forecast implies that headline inflation will fall to a trough of around 0.3-0.4%yoy in January/February and remain well below the 1.0% level until 2015Q4.”
“However, the near-term inflation forecasts are very sensitive to the sharp moves in oil prices that are still underway.”
“If our near-term inflation forecast is correct, we expect there to be increased speculation early this year that the UK is at risk of falling into ‘Japanese-style’ deflation. Our own view is that, while underlying inflationary pressures remain subdued, we think the risk of sustained deflation in the UK is relatively low.”
Key Quotes
“While too-high inflation was viewed by many as a key risk this time last year, too-low inflation appears a bigger risk for 2015. Headline CPI inflation fell from +1.3%yoy to +1.0%yoy in November and, barring a significant surprise, we expect inflation to have fallen below 1.0% in December, requiring Governor Carney to write a letter to Chancellor Osborne explaining why inflation is so low.”
“We expect the December reading to be the first of many below 1%. Much of the impact of the fall in oil prices seen in recent months has yet to feed through to consumer prices and we expect fuel prices to knock a further 0.5pp off headline inflation in the coming months.”
“With underlying inflationary pressures also appearing subdued, our forecast implies that headline inflation will fall to a trough of around 0.3-0.4%yoy in January/February and remain well below the 1.0% level until 2015Q4.”
“However, the near-term inflation forecasts are very sensitive to the sharp moves in oil prices that are still underway.”
“If our near-term inflation forecast is correct, we expect there to be increased speculation early this year that the UK is at risk of falling into ‘Japanese-style’ deflation. Our own view is that, while underlying inflationary pressures remain subdued, we think the risk of sustained deflation in the UK is relatively low.”