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UK CPI softer on headline rate

UK inflation falls to 0.3% YoY (from 0.5%), with core rate rising to 1.4% (from 1.3%). The fall in the headline rate was more than expected, Headline fall more than expected, but core rate in line. Sterling little changed. 1.5355. Not surprisingly, it was transport costs (fuel) that was pulling the headline rate lower. Food, together with Alcohol and tobacco were also contributing to the fall, with clothing and footwear offsetting. The fact that the headline rate was higher at the moment validates the Carney view that underling inflation pressures are not falling, meaning that the fall in the headline rate is more likely to prove temporary. The better tone to sterling is more likely to hold as a result of this underlying picture, but cable is struggling for a sustained push above the 1.54 level for now. EURGBP looking more interesting and near to the year low’s of 0.7372.

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