Once again, worries are visible in the UK regarding deflation risks rising, as consumer prices decline heavily while retail price index marks the worst slip since 1948! As inflation rates fall, all reasons that are triggering deflationary risks at a time the nation is dealing with the worst economic growth since WWII.
The Office for National Statistics (ONS); released its CPI for the month of June coming in at 0.3% inline with expectations, and lower than the previous reading of 0.6%, while on the year it dipped to 1.8% also in line with analyst projections and worse than the preceding reading of 2.2 percent.
Taking the data into detail we see that the yearly slip was because of food, alcohol and tobacco falling to 4.8% from 6.7%; non-processed foods from 9.3% to 6.4%; while, energy dipped down to -1.9% from -1.3 percent. In monthly details, we see that food, alcohol & tobacco; fell to -0.3% from 1.1%, while non-processed food declined to -0.2% from 1.8 percent.
Core CPI for the year ending in June, which excludes food and energy prices, was unchanged from projections and prior readings of both at 1.6 percent.
Although the monthly reading had risen slightly in the past month, today we see that they have plummeted again, which supports the fact that there are high deflation risks in the nation, lead from the global recession that weighed heavily on prices as producers were forced to lower prices, as a way to lure consumers, while at the same time doing whatever it takes to avoid eroded earnings.
As prices are lower, consequently it arouses deflation risks in the nation while the crippled demand is also a major factor behind the decline in prices that was a result of the mounting of job losses that reduces spending levels in the economy, as Britons pockets were squeezed.
It is true that the yearly inflation rates are below the banks set target level, yet the BoE already projected that inflation rates this year will decline to 0.4%, before rising to 1.5% in the upcoming yea,r as a result of the crippled domestic demand and plunge in oil prices.
Deflation is still a major worry that is weighing on the outlook of the United Kingdom, while officials have been using all possible weapons to avoid this from happening, since the central bank is already buying gilts worth 125 billion pounds; while there are expectations that they might extend the program till next month, since it is scheduled to end this month, in my opinion, these measures should be extended, especially since prices are sliding tremendously.
The ONS also released its retail price index (RPI) for the month of June coming in at 0.3% inline with predictions, and lower than May's reading of 0.6%; while, for the year ending in June, they came in at -1.6% unchanged from projections; while, worse than the prior reading of -1.1 percent.
Looking at this data beneath the microscope, we notice that rent over a period of 12 months; fell to 1.9% from the previous 3.0%, while utilities declined to 8.7% from the prior 11.5 percent.
As rent is declining it is the only positive sign behind falling inflation rates, because this makes it easier for Britons to keep up with installment at a time some of them are jobless. Although, from consumers side this is a good thing, but a major fear to government since they are worried about pumping more money into the market, since this might be hard to pull back all this money out of the nation when it recovers.
Alongside this data, there was also RPI excluding mortgage installment payments for the year ending in June, which came in at 1.0%; worse than the prior 1.6%, and the presumed reading of 1.1 percent.
Today was all about pessimism in the nation, which only added to the worst quarter contraction since 1958; as the economy contracted by 2.4 percent in the first three months of this year. Once again the outlook is dull, especially since now, deflation risks resume their rise; therefore, only making a full recovery is going to take much longer to happen in the nation.
The UK stocks extended their gains, as a result of mining company stocks inclining, lead from metal prices rising. As of 11:01 GMT; the FTSE-100 index leaped 28.87 points or 0.69% to 4,231.00 points.