China: Despite Rising Food Prices, Deflation Foreseen

Unemployment in the United Kingdom remained unchanged for the month of December according to the Office for National Statistics. The report cited a 5.10% rate in unemployment for the month of December, unchanged from the previous month while missing estimates of 5.00%. Wages, including bonuses, met expectations, falling from November’s 2.1% to 1.9% for December whereas wages without bonuses rose 2%, above November’s 1.9% and forecasts of 1.8%. With the wage growth still far from the Bank of England’s goal of 3%, the central bank is in no rush to adjust policy and raise rates as evidenced by existing projections. Improvements in employment are a strong sign, but inflation near zero is keeping a lid on earnings growth. The UK Pound rose modestly versus the Euro over the session, with the EURGBP pair closing at 0.7781.

Concerns about disinflation were allayed modestly following the consumer price index report from the Chinese National Bureau of Statistics for the month of January.  The 1.8% print came in higher than the December’s 1.6% reading but failed to meet consensus estimates of 1.9%. Food prices climbed by 4.1% whereas non-food prices rose at a slower pace of 1.2%. Over the same time period, consumer goods ascended by 1.5% and services gained 2.2%. February’s reading is anticipated to be even stronger on the back of expectations that food prices will be higher due to bad weather conditions and grocery spending for the Lunar New Year. These inflation levels are likely to prove transient and temporary, with economists expecting seasonal conditions to subside, likely paving the way towards renewed disinflation and possible deflation. The Chinese Yuan gained modestly versus the US dollar overnight, touching lows of 6.5158 before rebounding slightly.