Despite all the hoop-la of the UK economic recovery - and Mark Carney's credibility-sapping dynamic forward guidance "we'll know it when we see it" perspective - billions in QE has failed to spark enough 'inflation' to break the Bank of England's oh so critical 2% inflation target. For the first time since November 2009, UK CPI fell below the 2% 'threshold' in January (must be the weather) as Japan's deflation exporting (what goes up there must go down everywhere else) spreads from the US to the UK. Of course, the silver lining for equity markets is that this provides Carney just the right ammo to keep rates lower for longer at their record lows; but price pressures are building...
Of course this hasn't stopped QE from driving UK house prices and the equity market to record highs as 'asset' inflation is all that really matters...
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As Stefan Karlsson notes - it's definitely not great news...
For the first time since 2009, when oil prices had collapsed and the VAT had been temporarily reduced, British inflation fell below 2%, to 1.9% to be more precise. Note however that this is still more than a percentage point higher than in the euro area, despite the fact that the pound is up about 6% against the euro (and up about 6% against the U.S. dollar) during the latest year.
When price inflation continues to exceed that in your major trading partners despite a rising currency, this suggests that domestic price pressures are very strong.
In Britain's case it doesn't reflect rising wages however, but falling productivity.
But hey - why not bid the FTSE up 1% anyway and outperform all European stocks.
Charts: Bloomberg