In December, UK producer prices for both input and output decreased more than was anticipated. However, the BoE continues to struggle with wage growth.
On the economic calendar for the UK, it was a busy morning. The focus was on UK producer prices for December. The Bank of England continues to place a high priority on both wage growth and inflation. The BoE is determined to raise inflation to its target even in the face of a fragile macroeconomic climate.
Compared to November, when it rose by 19.2%, the Producer Price Index Input grew by 16.5% in December. From 17.5% in November, the Producer Price Index Output increased 14.7% year over year. Increases of 18.0% and 16.4%, respectively, are predicted by economists.
based on the ONS,
- After reaching a record high of 6.2% in the year leading up to Q3 2022, service producer prices rose by 5.2% in the year leading up to Q4 2022.
- While the annual rate of output PPI has weakened for the fifth consecutive month, the annual rate of input PPI has slowed for six months running.
- At 4.11 percentage points, food items had the most upward contribution to the production annual rate in December 2022.
- The yearly input inflation rate was most significantly increased by the production of metals and non-metallic mineral products.
Following the preliminary January private sector PMI readings, which raised alarms, came the most recent inflation components.
Tuesday's UK Composite PMI survey showed that cost pressures have further decreased and were at their lowest level since April 2021. The BoE may become more hawkish in the short term, as businesses pointed to wage pressures as the main cause of growing corporate expenditures.
In January, average rates charged rose significantly as businesses tried to pass on the trend in rising employee expenses. The lower PPI statistics could not be sufficient to relieve pressure on the BoE given that wage growth is the main factor. Increases in interest rates that are more pronounced would be more harmful to the UK economy.
Price Response of GBP/USD to UK Producer Prices
The GBP/USD exchange rate soared to an early high of $1.23394 before dropping to a low of $1.23119 ahead of today's wholesale inflation figures.
The GBP/USD dropped to a low of $1.23178 in response to the Producer Price Index news before stabilising.
The GBP/USD exchange rate was down 0.11% to $1.23264 at the time of writing.
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| 25-01-23 GBPUSD Hourly Chart |
Coming Up
Since no members of the Monetary Policy Committee are speaking today, investors are left to follow media chitchat while inflation was once again in the focus.
On the US economic calendar, the day is expected to be calm. Investors must rely on company profits to determine market risk sentiment as there are no US economic indicators to take into account.
Big names including Tesla (TSLA), IBM, and Boeing (BA) are among those announcing earnings results today.
However, with the FOMC entering the blackout period on Saturday, there are also FOMC members speaking today to influence.
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