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US inflation points to rate rise, while UK prices stop falling - as it happened US inflation points to rate rise, while UK prices stop falling - as it happened
(about 1 month later)
5.02pm GMT5.02pm GMT
17:0217:02
European markets end sharply higher ahead of Fed, as oil stabilisesEuropean markets end sharply higher ahead of Fed, as oil stabilises
After another Black Monday it was Turnaround Tuesday for European markets. With the oil price stabilising - Brent crude is now 1.4% better at $38.47 a barrel - and investors more or less inured to a US rate rise from the Federal Reserve on Wednesday, leading shares recovered some of their recent losses. The FTSE 100 finished higher for the first time in nine trading sessions, while other markets also moved ahead. The closing scores showed:After another Black Monday it was Turnaround Tuesday for European markets. With the oil price stabilising - Brent crude is now 1.4% better at $38.47 a barrel - and investors more or less inured to a US rate rise from the Federal Reserve on Wednesday, leading shares recovered some of their recent losses. The FTSE 100 finished higher for the first time in nine trading sessions, while other markets also moved ahead. The closing scores showed:
On Wall Street the Dow Jones Industrial Average is currently 176 points or 1% higher.On Wall Street the Dow Jones Industrial Average is currently 176 points or 1% higher.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow as the Federal Reserve (probably) raises US interest rates for the first time in nearly ten years.On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow as the Federal Reserve (probably) raises US interest rates for the first time in nearly ten years.
UpdatedUpdated
at 5.33pm GMTat 5.33pm GMT
4.10pm GMT4.10pm GMT
16:1016:10
Oil price volatility has seen crude record hefty falls and rises sometimes on the same day. But for once, it has remained mainly in positive territory with none of the violent swings of recent times, with Brent crude now up around 1% at $38.26.Oil price volatility has seen crude record hefty falls and rises sometimes on the same day. But for once, it has remained mainly in positive territory with none of the violent swings of recent times, with Brent crude now up around 1% at $38.26.
And this (unusual) steadiness has helped support stock markets, with the Dow Jones Industrial Average up 183 points or 1% and the FTSE 100 2.4% better. Jasper Lawler, market analyst at CMC Markets, said:And this (unusual) steadiness has helped support stock markets, with the Dow Jones Industrial Average up 183 points or 1% and the FTSE 100 2.4% better. Jasper Lawler, market analyst at CMC Markets, said:
Unlike on recent occasions, a reversal of the decline in oil prices has lasted through the afternoon and relieved some of the pressure on stock markets. The bounce had its beginnings on Monday when crude oil finished flat after having being down over 2% during the day and continued through Tuesday.Unlike on recent occasions, a reversal of the decline in oil prices has lasted through the afternoon and relieved some of the pressure on stock markets. The bounce had its beginnings on Monday when crude oil finished flat after having being down over 2% during the day and continued through Tuesday.
Monday’s oil price rebound coincided with the Dow Jones Industrial Average narrowly avoiding a two-month low.Monday’s oil price rebound coincided with the Dow Jones Industrial Average narrowly avoiding a two-month low.
3.34pm GMT3.34pm GMT
15:3415:34
But if the consensus now is that a US rate rise is inevitable on Wednesday, there are differing views about what happens after that. Some believe the underlying strength of the US economy may lead the Federal Reserve to a series of hikes. But a Wall Street Journal survey paints a different picture:But if the consensus now is that a US rate rise is inevitable on Wednesday, there are differing views about what happens after that. Some believe the underlying strength of the US economy may lead the Federal Reserve to a series of hikes. But a Wall Street Journal survey paints a different picture:
What goes up must come down? That’s one worry as the Fed prepares to raise rates this week https://t.co/btYoyASnoe pic.twitter.com/B0qG9D2Uy0What goes up must come down? That’s one worry as the Fed prepares to raise rates this week https://t.co/btYoyASnoe pic.twitter.com/B0qG9D2Uy0
3.29pm GMT3.29pm GMT
15:2915:29
The expected rate by the US Federal Reserve on Wednesday is likely to have a negative effect on emerging markets, since they have benefitted from inflows of cash thrown off by central bank stimulus measures over the past years.The expected rate by the US Federal Reserve on Wednesday is likely to have a negative effect on emerging markets, since they have benefitted from inflows of cash thrown off by central bank stimulus measures over the past years.
But the impact may not initially be that significant since the Fed move has been widely expected and emerging markets have already come off their highs. And in any case not all emerging markets are equal in this respect. That is the view of Sanjiv Shah, chief investment officer at Sun Global Investments, who said:But the impact may not initially be that significant since the Fed move has been widely expected and emerging markets have already come off their highs. And in any case not all emerging markets are equal in this respect. That is the view of Sanjiv Shah, chief investment officer at Sun Global Investments, who said:
The Fed’s rise in interest rates will be felt in the emerging market currencies to some extent, and they will be under some additional pressure as many have already been hit by the global commodity slump and general risk aversion to emerging market assets.The Fed’s rise in interest rates will be felt in the emerging market currencies to some extent, and they will be under some additional pressure as many have already been hit by the global commodity slump and general risk aversion to emerging market assets.
However, as the interest rate increase has been flagged for some time, much of its likely impact is already reflected in current prices and so it unlikely to be overly significant.However, as the interest rate increase has been flagged for some time, much of its likely impact is already reflected in current prices and so it unlikely to be overly significant.
Rather, the interest rate rise in the US will in the medium term highlight the differences between the diverging emerging market countries, with weaker countries such as Turkey, South Africa and Russia being more negatively impacted that that of stronger performing countries such as India.Rather, the interest rate rise in the US will in the medium term highlight the differences between the diverging emerging market countries, with weaker countries such as Turkey, South Africa and Russia being more negatively impacted that that of stronger performing countries such as India.
A possible Fed rate increase may have some initial negative impact on Emerging Market assets but they are unlikely to be significant as the Fed increase has been well flagged and the EM assets have already fallen greatly.A possible Fed rate increase may have some initial negative impact on Emerging Market assets but they are unlikely to be significant as the Fed increase has been well flagged and the EM assets have already fallen greatly.
2.42pm GMT2.42pm GMT
14:4214:42
Wall Street opens sharply higherWall Street opens sharply higher
US markets are continuing where they left off on Monday. In contrast to Europe, which showed major falls during the first trading session of the week, Wall Street ended a volatile day higher. And while European markets have now rebounded, the US is also soaring as investors come to terms with the widely expected interest rate rise from the Federal Reserve tomorrow.US markets are continuing where they left off on Monday. In contrast to Europe, which showed major falls during the first trading session of the week, Wall Street ended a volatile day higher. And while European markets have now rebounded, the US is also soaring as investors come to terms with the widely expected interest rate rise from the Federal Reserve tomorrow.
Oil is again a dominant factor. After coming within a whisker of an 11 year low on Monday, Brent crude has recovered and is currently up 1.4% at $38.45 a barrel while WTI is up 0.5% at $36.8.Oil is again a dominant factor. After coming within a whisker of an 11 year low on Monday, Brent crude has recovered and is currently up 1.4% at $38.45 a barrel while WTI is up 0.5% at $36.8.
So the Dow Jones Industrial Average is up 181 points or 1% in early trading, helping push the FTSE 100 even higher, up 2.3%. Germany’s Dax is up 2.9% and France’s Cac is 2.7% better.So the Dow Jones Industrial Average is up 181 points or 1% in early trading, helping push the FTSE 100 even higher, up 2.3%. Germany’s Dax is up 2.9% and France’s Cac is 2.7% better.
2.35pm GMT2.35pm GMT
14:3514:35
Meanwhile the market is underestimating the pace of future US rate rises, according to Dr Harm Bandholz, chief US economist at UniCredit Research:Meanwhile the market is underestimating the pace of future US rate rises, according to Dr Harm Bandholz, chief US economist at UniCredit Research:
The Fed will raise rates tomorrow and signal a gradual rate hike path for the consecutive three years. Chair Yellen has highlighted in her recent speech that the FOMC “will carefully monitor actual progress toward our inflation goal as we make decisions over time on the appropriate path for the federal funds rate.”The Fed will raise rates tomorrow and signal a gradual rate hike path for the consecutive three years. Chair Yellen has highlighted in her recent speech that the FOMC “will carefully monitor actual progress toward our inflation goal as we make decisions over time on the appropriate path for the federal funds rate.”
As we think that the underlying strength of the domestic economy will continue to allow inflation rates to grind higher, we reiterate our view that financial markets underestimate the pace of hikes.As we think that the underlying strength of the domestic economy will continue to allow inflation rates to grind higher, we reiterate our view that financial markets underestimate the pace of hikes.
2.23pm GMT2.23pm GMT
14:2314:23
And another analyst agrees that a US rate rise is now likely on Wednesday in the wake of the inflation figures. Rob Carnell at ING Bank says:And another analyst agrees that a US rate rise is now likely on Wednesday in the wake of the inflation figures. Rob Carnell at ING Bank says:
The last possible piece of data that could have undermined expectations for a 25 basis point rate hike at the Dec 16 FOMC meeting, has if anything, reinforced the need for a small increase in rates.The last possible piece of data that could have undermined expectations for a 25 basis point rate hike at the Dec 16 FOMC meeting, has if anything, reinforced the need for a small increase in rates.
November CPI was flat on the month – but that was still sufficient, given helpful base effects, to push the annual inflation rate from 0.2% year on year to 0.5% year on year. Much more of this seems likely in coming months, even with oil’s recent price weakness. So as we move through January and into February, we look for headline inflation to rapidly begin to converge on core inflation, now up to 2.0% year on year (up from 1.9% in October).November CPI was flat on the month – but that was still sufficient, given helpful base effects, to push the annual inflation rate from 0.2% year on year to 0.5% year on year. Much more of this seems likely in coming months, even with oil’s recent price weakness. So as we move through January and into February, we look for headline inflation to rapidly begin to converge on core inflation, now up to 2.0% year on year (up from 1.9% in October).
We suspect that the Fed will try to resist any pressure this puts on them to respond more aggressively with policy rates than the market currently expects. They will be wary that such actions will likely push the dollar meaningfully higher, and weaken an already soft manufacturing sector. As a result, the Fed are likely to tolerate some higher headline and core inflation, as well as higher wages, which we believe will continue to push higher into a 2.5-3.0% range in the early part of 2016.We suspect that the Fed will try to resist any pressure this puts on them to respond more aggressively with policy rates than the market currently expects. They will be wary that such actions will likely push the dollar meaningfully higher, and weaken an already soft manufacturing sector. As a result, the Fed are likely to tolerate some higher headline and core inflation, as well as higher wages, which we believe will continue to push higher into a 2.5-3.0% range in the early part of 2016.
In doing so, we think the Fed runs the risk that inflation expectations will creep higher, and if they are slow to move policy rates, this pressure is likely to exert itself through the back end of the yield curve, with higher 10 year yields.In doing so, we think the Fed runs the risk that inflation expectations will creep higher, and if they are slow to move policy rates, this pressure is likely to exert itself through the back end of the yield curve, with higher 10 year yields.
2.11pm GMT2.11pm GMT
14:1114:11
Ipek Ozkardeskaya of London Capital Group says today’s US inflation report will satisfy the hawks at the US Federal Reserve to vote for an interest rate rise tomorrow night.Ipek Ozkardeskaya of London Capital Group says today’s US inflation report will satisfy the hawks at the US Federal Reserve to vote for an interest rate rise tomorrow night.
She explains:She explains:
The US inflation figures matched the market expectations in November. The headline inflation remained flat, while once the impact of food and energy prices discounted, the prices inflated 0.2% on month.The US inflation figures matched the market expectations in November. The headline inflation remained flat, while once the impact of food and energy prices discounted, the prices inflated 0.2% on month.
Given the cheaper energy and oil prices, the Fed may have some additional difficulty to lift the consumer prices to their 2% target soon enough, nevertheless the price in services appear to counterweight the deflation in the energy and commodity complex.Given the cheaper energy and oil prices, the Fed may have some additional difficulty to lift the consumer prices to their 2% target soon enough, nevertheless the price in services appear to counterweight the deflation in the energy and commodity complex.
And this is good news for the Fed preparing to raise its interest rate by 25 basis point for the first time since 2006.And this is good news for the Fed preparing to raise its interest rate by 25 basis point for the first time since 2006.
#US inflation reassured #Fed hawks #SPX #Dow opening calls https://t.co/eXNnYInIR6#US inflation reassured #Fed hawks #SPX #Dow opening calls https://t.co/eXNnYInIR6
2.07pm GMT2.07pm GMT
14:0714:07
A handy visual of how the inflation rate has picked up:A handy visual of how the inflation rate has picked up:
Last inflation report before Fed points to rate hike. Headline CPI gains from 0.2% to +0.5%, Core CPI +2% from +1.9% pic.twitter.com/y0SiPoeJ9ZLast inflation report before Fed points to rate hike. Headline CPI gains from 0.2% to +0.5%, Core CPI +2% from +1.9% pic.twitter.com/y0SiPoeJ9Z
2.03pm GMT2.03pm GMT
14:0314:03
The main message from today’s US inflation report is that pricing pressures are building (if you ignore cheaper oil and food).The main message from today’s US inflation report is that pricing pressures are building (if you ignore cheaper oil and food).
This chart, from Johnny Bo Jakobsen of Nordea Markets, shows how all the measures of core inflation are picking up, with core inflation in the services industry hitting a seven-year high:This chart, from Johnny Bo Jakobsen of Nordea Markets, shows how all the measures of core inflation are picking up, with core inflation in the services industry hitting a seven-year high:
He argues that this means the Federal Reserve will raise interest rates several times next year:He argues that this means the Federal Reserve will raise interest rates several times next year:
Today’s CPI report showed more signs that domestic inflation pressures continue to mount, despite the stronger US dollar and lower oil prices. As the impact of the stronger dollar and the slump in energy prices begins to wane next year, inflation will climb even higher.Today’s CPI report showed more signs that domestic inflation pressures continue to mount, despite the stronger US dollar and lower oil prices. As the impact of the stronger dollar and the slump in energy prices begins to wane next year, inflation will climb even higher.
We stick to the view that rising inflation pressures will imply that the pace of Fed tightening during 2016 will be faster than is currently priced in by markets.We stick to the view that rising inflation pressures will imply that the pace of Fed tightening during 2016 will be faster than is currently priced in by markets.
Here’s his full take.Here’s his full take.
UpdatedUpdated
at 2.06pm GMTat 2.06pm GMT
1.39pm GMT1.39pm GMT
13:3913:39
US inflation: Instant reactionUS inflation: Instant reaction
It appears that the US inflation report paves the way to a Fed rate hike tomorrow night:It appears that the US inflation report paves the way to a Fed rate hike tomorrow night:
CPI in line with expectations...services pressures continue to dominate.CPI in line with expectations...services pressures continue to dominate.
Next month, core #CPI will go to 2.1% or 2.2% y/y, simply because we drop off last December's +0.06% aberration.Next month, core #CPI will go to 2.1% or 2.2% y/y, simply because we drop off last December's +0.06% aberration.
2-year yields tick up a bit after that CPI report. Lack of weakness removes some fears that Fed's making a mistake.2-year yields tick up a bit after that CPI report. Lack of weakness removes some fears that Fed's making a mistake.
Lift off ... we have lift off ....Lift off ... we have lift off ....
UpdatedUpdated
at 1.40pm GMTat 1.40pm GMT
1.32pm GMT
13:32
US inflation rises to 0.5%
Here we go....
Inflation across the US economy has risen, giving the Federal Reserve another green light to hike interest rates tomorrow.
The US Consumer Prices Index jumped by 0.5% annually in November. On a monthly basis, prices were unchanged compared with October.
And crucially core inflation, which strips out food and energy, increased to 2% year-on-year in November.
Core CPI accelerates to 2.0% YOY as expected.
1.25pm GMT
13:25
Protests in Greece ahead of austerity vote
Helena Smith
Although the eurozone crisis has dropped out of the headlines, it isn’t over.
And in Greece today, thousands of nurses took to the streets to protest against cuts envisaged in the country’s latest package of internationally mandated reforms. That package will be voted on tonight
Our correspondent Helena Smith reports:
Tonight’s fast-track vote on the second set of prior actions, or ‘milestones,’ agreed by Athens’ leftist-led government, may not involve the red-hot issue of pensions (the most incendiary reform of all) but it has spurred fury nonetheless. Nurses are outraged that the latest reform package envisages a 40% pay cut for departmental heads at a time when the sector has suffered wage cuts of 30% and the health system is teetering on the verge of collapse.
Chanting “no more downgrading,” nurses from around Greece gathered outside the health ministry this morning determined that the government revokes the decision before the ballot.
Lambros Bizas, treasurer of the nurses 35,000-strong union, told me:
“It’s totally unethical that this decision was taken without any prior discussion literally overnight. It is almost as if we are being punished because departmental heads in other areas of the public sector, have received a €50 pay increase as part of the reform. To think that this is a left-wing government that has done this is even more absurd.”
A lot of nurses, badly hit by successive rounds of cost-cutting measures since Athens’ debt crisis erupted, had voted for the governing Syriza party when snap polls were held in September, union officials said. Instead what they had discovered were “lies, lies, lies.”
“Right now there is great disillusionment, the general feeling is that they are the worst of the worst,” said Giorgios Drachtidis, who sits on the union’s board.
“Hospitals are in a tragic state … cuts are such that on the night shift there is only one nurse per 70 patients. At least with other governments you knew what to expect. This government does things overnight. You never know what tomorrow will bring.”
Dimitris Skortellis, the union’s president who was also attending the rally, added:
“With disbelief we have been told the cut was a typing mistake but frankly we don’t believe it. We will fight until it is officially withdrawn.”
Nurses are not the only public sector employees protesting today. The communist affiliated PAME labour union is organising 27 rallies across Greece ahead of tonight’s vote.
MPs, meanwhile, have been debating the measures. Finance minister Euclid Tsakalotos looks like he’s ready for Christmas!
Updated
at 4.03pm GMT
1.15pm GMT
13:15
Reaction to this morning’s UK inflation report is still coming in.
Martin Beck, senior economic advisor to the EY ITEM Club, reckons that price rises will remain weak in 2016:
“November’s figures are likely to mark the beginning of the long road back towards the 2% target, with the base effects associated with last year’s collapse in the oil prices now having started to kick-in. We still expect inflation to remain below 1% until well into 2016, requiring the Governor to write a further series of open letters of explanation to the Chancellor.”
1.04pm GMT
13:04
One down, one to go.
With UK inflation out of the way (coverage starts here), investors are now looking to America.
The latest US consumer prices index report, due in just under 30 minutes, is expected to show that inflation picked up - to perhaps 0.5% from 0.2% in October.
A big jump in prices will mean there’s even more chance that the Federal Reserve finally takes the plunge and raises US borrowing costs tomorrow (at 7pm GMT or 2pm on the East Coast)
12.38pm GMT
12:38
Shares in London have pushed higher following the news that Britain escaped negative inflation last month.
The FTSE 100 blue-chip index jumped by 102 point, or 1.75%, to 5977 points. That’s a hefty jump, clawing back all of yesterday’s selloff.
Investors are still holding their nerve ahead of the US central bank’s policy meeting on Wednesday night, where it’s likely to raise US interest rates.
There’s little prospect of the Bank of England following suit soon, though, given UK inflation is so far below the 2% target.
Almost all shares have gained ground in London today. Big risers include supermarket chain Sainsbury, after new figures showed that it had gained market share.
Research group Kantor also reported that major retailers are still cutting prices in an attempt to win sales; another reason why inflation is so low.
Related: Sainsbury's, Lidl and Aldi gain while rivals struggle
12.16pm GMT
12:16
Page 21 of today’s inflation report contains a detailed breakdown of the Consumer Prices Index, showing how prices of key items rose (or fell) in the last year.
Here’s a flavour:
And that adds up to an overall inflation rate of +0.1%.
Updated
at 12.45pm GMT
11.48am GMT
11:48
Summary: UK inflation back above zero
Here’s our news story on this morning’s inflation figures, by Heather Stewart:
UK inflation nudged back above zero last month for the first time since July, with prices rising by 0.1%.
Plunging global commodity prices have meant that inflation has been unusually weak in historic terms through much of 2015, and despite November’s 0.1% increase, the consumer prices index (CPI) shows that the price level across the economy stood barely higher than at the end of last year.
The Office for National Statistics (ONS) said that smaller declines in transport costs, including petrol, than for the same month in 2014 had contributed to making inflation positive, as measured on the CPI.
Clothing and footwear prices fell, partly offsetting the upward pressure from transport costs.
Measured on the retail prices index (RPI), which is still used to set some train ticket prices and pension payments, and is calculated to include housing costs, inflation appeared stronger, at 1.1%...
More here:
Related: UK inflation moves above zero
11.39am GMT
11:39
Will UK pay rises wither?
With inflation so low, UK workers are currently enjoying real wage increases of around 2.5% to 3%.
That’s bringing some relief after the long cost-of-living squeeze after the financial crisis began.
But there are concerns that wage increases could be pegged back in 2016; bosses could point to low inflation as a reason to keep the purse-strings tight.
The Institute of Directors has fired a warning shot into my inbox. Their economic analyst, Michael Martins, says Britain needs to boost productivity (a long-standing problem), before pay rises can be afforded.
Employees may begin to demand higher wage increases in cash terms once prices begin to go up and they feel the pinch on their disposable incomes. When this occurs, employers and staff will be under even more pressure to raise productivity to pay for sustainable wage rises.
This follows a warning from the Resolution Foundation, a think tank, overnight. It fears that real wage growth (nominal pay rises minus inflation) could drop to below 1% - -if inflation picks up and productivity remains weak.
My colleague Katie Allen explains:
The thinktank considers the impact of five different scenarios for productivity and prices on median hourly wage growth in 2016. On its best case, faster-than-expected productivity growth of 2% and prolonged low inflation that rises to just 1% by the end of the year could result in the fastest real wage growth for more than a decade at around 3%.
But if productivity growth holds at 1.3% and inflation grows more quickly than forecast to hit the Bank’s target of 2% by the end of the year, the pace of real wage growth could drop to 0.9%. That would leave workers waiting even longer to return to the kind of pay rises they enjoyed before the downturn.
Related: UK pay rises likely to fade fast, thinktank warns
11.29am GMT
11:29
Andy Scott, economist at money transfer company HiFX, is also in the growing band of experts who believe UK interest rates will remain at record lows for many months, thanks to weak inflation.
“We seem to be experiencing the effects of a slowdown in a number of producing countries, especially China, that are forcing prices lower.
We expect this situation to continue into next year and for the Bank of England to therefore maintain rates where they are until the back end of next year, possibly into 2017 depending on whether OPEC decide to intervene to lift oil prices.
11.18am GMT
11:18
Low inflation and cheap oil is a double-dose of pre-Christmas cheer for consumers, says Chris Williamson, of financial data provider Markit:
“This is clearly good news for consumers in two respects: low prices boost spending power and the dovish outlook for inflation takes pressure off the Bank of England from hiking interest rates any time soon.”