Central banks of advanced economies have kept official interest rates at historical lows since the GFC in an attempt to foster economic growth and increase inflation rates back to a commonly-preferred range of 2% to 3%. The Bank of England (BoE) is one of these banks.
The policy has been effective on both lowering the unemployment and increasing inflation rates. The unemployment rate has been under 6.0% for the last three years and under 5% since mid-2016. The inflation rate fell until around 2015 and then it began to increase gradually. In the last twelve months the pace has picked up and some measures of consumer inflation are above 3.0%.
It is too easy to tell but the BoE may be about to question the wisdom of the duration of its low-interest rate policy. According to the latest consumer price index figures from the U.K’s Office of National Statistics, consumer prices increased by 0.4% in November, up from October’s +0.1%. On an annual basis, consumer inflation rose by 3.2%, also an increase on October’s figure of 3.0%.
While headline inflation may be in excess of the BoE’s preferred range of 2%-3%, core inflation remained within the range. Consumer inflation excluding energy, food and alcohol during November was +0.3%, or 2.7% on an annual basis. October’s comparable figures were +0.0% and 2.7%.
ANZ said the higher inflation rate was predominantly driven by higher airfares and computer game prices. Economists had expected a 0.3% increase during November and 3.0% for the year. Bond yields rose modestly on the news and 10 year bond yields finished the day up 2bps at 1.22%.
