January CPI at 4%: What the experts say


Figures from the Office for National Statistics revealed a 0.3% jump in the rate of consumer prices index (CPI) inflation from its December level of 3.7%. Here's how the economists reacted ...

Sunrise at the City of London

The City view: Inflation came in as expected.

›› Read the full story: Inflation running at 2% above Bank target


January's UK consumer prices figures come as something of a relief given the potential for another nasty surprise this month.

The fact that CPIY - which excludes tax effects - has risen above the MPC's 2.0% target (to 2.4%) will no doubt cause some concerns that underlying price pressures in the economy are picking up.

But, as Mervyn King will no doubt stress in his letter to the Chancellor to be published later, once VAT, food and energy effects are excluded, inflation remains much lower.

Meanwhile, medium-term influences like wages growth, money growth and spare capacity all point to downward pressure ahead. The fact that the MPC held rates last week despite seeing these numbers suggests that, for now, the majority of Committee members are still of the same mind.

But tomorrow's Inflation Report will tell us more.


Bang in line with expectations. The VAT increase is the key driver but what we need to be on alert for is a further increase in the February data because some retailers made clear that they didn't raise prices until the end of January.

These numbers today were known to the Bank of England last week so they can be incorporated into the Inflation Report thinking that's going to be discussed tomorrow.

The inflation pressures should push up inflation further next month, so the headache is only going to get worse for the Bank in the short term.


It was not as bad as we had feared - we forecast a rise to 4.2% - but with fuel and food prices continuing to head higher we still suspect headline CPI will push above 4.5 percent in the next few months.

This will intensify pressure for an interest rate rise so all eyes will turn to the Bank of England Inflation Report document, to be published tomorrow. The general tone of the report and the accompanying press briefing will give us a much better idea as to whether the market fully pricing in a rate hike by May is realistic.

Given the fragility of the recovery and the weight of fiscal austerity we believe the market is being too aggressive in pricing in three rate rises this year (to 1.25%). Given our weak growth view we still place a high probability on there being no rate hikes in 2011.


Although inflation has aligned with expectations, the Bank of England will be still rather uncomfortable with inflation this high in the short term, particularly with core inflation now at 3% too.

But the key to determining where monetary policy is heading is the medium-term inflation forecast, and here tomorrow's Inflation Report will be crucial.

If the medium-term inflation forecast based on market implied interest rates (which are pricing in 75bps of hikes by the end of the year) is below the 2% target, which is what we expect it will show, then this suggests the Bank will refrain from tightening until much later this year.

We think a move as early as May is unlikely as it is too close to when the fiscal tightening picks up pace.

›› Where now for interest rates: Predictions


Relief really. It's come in inline with expectations. There were serious fears out there that we were going to see a higher number, and I thought the risks were to the upside if there was a bigger/faster VAT pass-through or if retailers used the VAT rise as an opportunity to push through additional price rises to protect margins, so that doesn't seem to have happened.

So I think it's still high, uncomfortably high, but I think there's relief and I think you certainly see sterling for some reason surging before this number, I don't know whether there were some speculative positions, people banking on a higher number, so I think these figures will come as a relief.


The numbers are broadly in line with market expectations, but the issue for the MPC is that inflation has overshot its target for much of the last 5 years and many are doubting its commitment to the inflation target.

Under these circumstances the committee has no choice but to sound hawkish at tomorrow's inflation report. We're looking for a Q3 rate hike but if the economic growth surveys remain good, that could be brought forward.