This morning has seen the latest set of inflation figures for the UK released and despite forecasts that the plunge seen in sterling in recent months could lead to higher prices, there is little evidence of that in these data points. The pound touched its lowest level of the day after the economic release and the FTSE 100 has broken back above the 6800 level.
Inflation, reflation or disinflation?
Several forecasters have predicted a rise in inflationary pressure in the UK economy largely due to the fall in the pound and loose monetary policy adopted by the MPC. Governor Carney himself noted that there may be a period of higher prices ahead due to the relatively strong economic performance and falling currency, but today’s data shows no sign of this phenomenon. Since Donald Trump emerged as victorious in the race for the White House, global bond yields have soared as his economic policies are seen as sending a reflation pulse through the US economy which has run significantly below the 2% target for the majority of the past few years.
The rise in UK CPI Y/Y of 0.9% was below the 1.0% increase seen last time and this means the print itself is a sign of disinflation - a reduction in the pace of rises seen in inflation. Having said that, it should be noted that this is just one data point and the recent rise in bond yields - whilst large in scale - is still relatively short-lived, and it may take some time for the dust to settle before the long term inflationary trajectory can be confirmed.
Supermarkets lead the charge higher
Amongst the best performing stocks on the FTSE 100 today are Morrison (LON:MRW), Tesco (LON:TSCO) and Marks & Spencer (LON:MKS) after the latest data by Kantar Worldpanel has been warmly received by investors. According to this data Tesco sales rose to their highest level in three years in the last quarter, rising by 2.2% in the 12 weeks to 6th November. One of the chief concerns amongst analysts following the food sector has been rising input costs due to currency depreciation with observers predicting that this area would be one of the first to face challenges if prices rise. Along these lines the earlier data points may suggest that for the time being these fears were a little overdone.
At the foot of the index mining stocks are under pressure with the five worst performing stocks on the UK blue-chip benchmark all coming from this sector. Antofagasta Holdings (LON:ANTO) have seen their stock fall by more than 5% since yesterday’s close, whilst BHP Billiton (LON:BLT) and Anglo American (LON:AAL) aren’t far behind and both off by more than 4%.