This morning, at 9:30 GMT, the Office
for National Statistics (ONS) will release Consumer Price Index (CPI) and
Producer Price Index (PPI) figures in the UK. Like all major economies, Britain
is seeing reducing inflation, mainly driven by lower energy costs.
The received wisdom in the Forex
markets is that if this tendency is reinforced yet again today, it will reduce
the pressure on the Bank of England to raise core interest rates, with a concomitant
reduction in the estimate of when the Pound Sterling will recover from the
pronounced swoon it has been experiencing, particularly against the US dollar.
The
effects of food and motor fuel
The ONS has produced an interesting graph
(shown above), which points up the added influence of food prices to the fall
in inflation. While lower energy prices, represented here by motor fuel, have
been a major factor since 2009, food prices have only been dropping since mid 2013.
There is no doubt that energy is a
part of the cost of production of food, but there has also been a major price
war in large food retail outlets in the UK and Ireland. In this the food
producers (mainly farmers), who occupy the part of the supply chain with the
lowest market power, have been squeezed by both the food product processors and,
in particular, the supermarkets.
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