No More Waiting: Inflation May Have Already Hit Fed's Target

The NBS said consumer price inflation rose by 2.5% from a year earlier, a figure that was higher than the 2.1% increase of December and market expectations for an acceleration to 2.4%.

According to the Wholesale Price Index (WPI) data released by the Commerce and Industry Ministry, the annual inflation rate was (-) 1.07 per cent in January, 2016.

The Labor Department said Wednesday consumer prices rose 0.6 percent last month, most since February 2013 and twice what economists were expecting.

Experts said, demand slowdown due to demonetisation could be one of the factors behind the fall in inflation.

Higher oil prices across the globe led the rise, causing the price of fuel to increase.

Looking ahead, both consumer and producer prices are expected to peak soon, as "the base effects that have boosted inflation in recent months are soon going to go into reverse", Julian Evans-Pritchard of Capital Economics said in a note.

Rural retail inflation was at 3.36 per cent in January compared with 3.83 per cent preceding month. Meanwhile, some members of the Monetary Policy Committee are clearly becoming twitchy at the pace at which inflation is now rising and the potential overshoot of the 2.0% target rate.

As per the data, food inflation basket contracted to 0.56 per cent in January, negative growth second time in a row.

The fuel and light category's inflation rate stood at 3.42 per cent in January.

"The [BoE] 2 per cent target represents something of a ceiling for CPI unless we see dynamics change".

Much of the rise in consumer prices was due to high food and transportation prices.

CPIH, which the ONS will adopt as its preferred measure of inflation in March, rose by 2.0% in the year to January 2017, compared with a 1.7% rise in the year to December 2016. But it was below a forecast for 1.9% in a Reuters poll of economists, as falling clothes prices offset some of the upward pressure on inflation from fuel and food.

Williamson pointed to the build-up in pricing pressures which were likely to further drive up inflation, with the fall in the pound following the Brexit vote having sparked the steepest rise in manufacturing costs in 25 years.

  • Zachary Reyes