The UK's inflation rate remained at -0.1% in October meaning this will further dampen expectations of a rise in interest rates any time soon. The ONS added that the Retail Prices Index, a separate measure that includes housing costs, fell to 0.7% in October from 0.8% in September. This is the lowest RPI rate since November 2009. October marked the first time the Consumer Prices Index has fallen on an annual basis for two months in a row since the index was created in 1997. The price of clothing rose last month, but this was offset by a fall in food, alcohol and tobacco. The report showed fuel prices fell by 14% on an annual basis, while food and drink prices fell by 2.7% in October and energy costs were also 4.1% lower.
The inflation figures continued to have an effect on the Pound. The Bank of England has said it expects inflation to remain close to zero for the rest of this year with the continued supermarket price wars and subdued oil prices. Reinforcing expectations that interest rates will remain pegged at record lows well into 2016.
UK Retail Sales, including and excluding fuel, came out weaker than expected yesterday. The UK CBI Industrial Trends Survey was better than last month (-11 vs October’s -18), but the negative reading conveys negative sentiment in absolute terms.
Osborne will update the nation on his economic policies which include cuts to departmental budgets but he apparently faces a struggle to meet the £10bn surplus forecast target.
Osborne has refused to deny that his goal to end two decades of budget deficits with a £10bn surplus by 2020 was sliding out of reach, amid increased spending on counter-terrorism and the NHS, as well as roadblocks in the House of Lords for his £4.4bn welfare cut.
The European Central Bank sees a risk that investors and consumers will lose faith in policy makers’ projections for reviving inflation, Executive Board member Peter Praet said. Eight months into its 1.1 trillion-euro bond-buying program, the ECB is considering stepping up stimulus as the euro area’s sluggish recovery fails to lift consumer prices clear of the deflation danger zone. While some policy makers have said there’s little need for more action just yet, Praet said the institution is concerned about persistent miscalculation of how long it’ll take to return inflation toward its goal.
Praet continued that while measures of financial conditions haven’t worsened, it’s partly because of investor expectations of more monetary stimulus. Even so, he rejected the suggestion that ECB policy is overly influenced by markets.
Price inflation in the Eurozone grew slightly more than originally estimated but remained well below the European Central Bank’s target.
The final reading on consumer price index for October, showed CPI grew 0.1% year-on-year last month, compared with a previous estimate indicating stagnant growth and with analysts’ expectations for an unchanged reading. Meanwhile, the core CPI, which strips out volatile items such as food and energy prices, rose 1.1% year-on-year, compared with an initial reading of 1% and with analysts’ expectations for a 1% gain.
Greece has secured a tentative deal with the Eurozone to unlock the latest tranche of financial aid. The two sides have agreed a batch of reforms that will be presented to the Greek Parliament. The Eurozone countries insisted on the measures before releasing €2bn (£1.4bn) in loans and up to €10bn in support for the banks. The Eurozone has agreed to provide Greece with up to €86bn in total with an extensive list of conditions that Greece had to meet before it receives instalments of the loans.
The ECB is expected to expand its quantitative easing program and possibly cut rates further into negative territory at its December meeting. The Euro remains under pressure with growing concerns that the terrorist attacks in Paris could undermine the already fragile economic recovery in the euro zone.
Construction Output figures were also released for the month of September; they came in at -0.4% from a previous reading of -0.2%. Construction output yearly figures were also released and they came in at 1.8%, previous reading being -6.0%.
The US consumer prices index rose in October which is a sign that inflation may be picking up again. The figures, along with the strong employment numbers last month, increase speculation that the Federal Reserve will raise interest rates in December. The Consumer Price Index (CPI) increased by 0.2% in October, after two months of declines. Prices were pushed up by the rising cost of electricity and resurgence in petrol prices.
The number of housing starts issued in the U.S. fell in October, while building permits rose better than expected. Housing starts dropped 11% to hit 1.060 million units last month from September’s total of 1.191 million units. The figure was predicted to decline by 3.9% to 1.160 Million. The number of building permits rose by 4.1% to a seasonally adjusted 1.150 million units from September’s total of 1.105 million; this was in line with expectations.
US data was, on balance, positive yesterday, lending further support to a Fed rate hike at the 15-16th December meeting. Whilst continuing jobless claims came out slightly worse than October’s print (2.175m vs October’s 2.174m), initial jobless claims were better than October’s print (271k vs 276k), the Conference Board Leading Indicator were better than expected (0.6% vs an expectation of 0.4%) and the Philadelphia Fed Manufacturing Survey were also better than expected (1.9 vs expectation of 0.5).
Furthermore, the FOMC minutes made firm reference to a December “lift-off” for rates and, as a consequence, the futures market, as indicated by Federal Funds Futures Contracts, now place a 72% chance of the Fed raising rates next month.