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Date: 20th January 2014
Inflationary pressures ease as commodity prices fall backIn this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK inflation data and the falling commodity prices.
The main points to note are:
- CPI inflation fell to the 2% target in December 2103 whilst producer output inflation was 1.0% and producer input prices were 1.2% lower in December 2013 than a year earlier.
- Even though CPI inflation has fallen, it is still higher than the growth in pay, thus continuing the squeeze on real incomes. But as the economy recovers, it can be expected that real incomes will resume growing.
- Falling commodity prices, helped by the firmer pound, have contributed to the weakening inflationary pressures.
- The IMF expects commodity prices to weaken in 2014 and into the medium term (to 2019), as production comfortably accommodates the continued growth in demand. Specifically, the IMF is optimistic that oil prices will ease steadily throughout the period. The IMF's position does not seem unreasonable, given the improvements in supply (not least from US "shale oil") and the relatively modest expected growth in demand.
- But oil prices are notoriously difficult to forecast, depending as they do on technological, economic and political developments. And even for 2014 forecasters are divided as to whether prices will weaken or strengthen. The projections by the International Energy Agency (IEA) up to 2035 must be especially vulnerable to large forecasting errors.
For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html
Press enquiries:
Arbuthnot Banking Group PLC:
Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk
Follow Ruth on Twitter @RuthLeaEcon
David Marshall, Director of Communications
020 7012 2432, 07502 285 835
davidmarshall@arbuthnot.co.uk
Pelham Bell Pottinger:
Dan de Belder
020 7337 1548
ddebelder@bell-pottinger.co.uk
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