Spoiled For Choice

US and UK inflation rises more slowly than expected

Image source: bad arithmetic @bad_arithmetic - Giphy, charnsitr, VectorShop - Shutterstock

What's going on?

Fresh data out on Wednesday showed that inflation – the rate at which prices of goods and services increase – rose more slowly than expected in the UK and US last month. That’s both good news and bad news for you…

What does this mean?

With the UK lowering its limits on electricity and gas prices, its consumers have been spending less on energy – and that’s contributed to the lowest rate of inflation in nearly three years. But core inflation – which excludes energy, fuel, alcohol, and tobacco prices – was exactly what economists had predicted for October.

Inflation in the US last month was higher than in the UK overall, but the closely watched core measure was actually lower than predicted. One reason for that could be slowing hotel price rises: recent wildfires in tourist hotspot California might’ve put visitors off, leading to a bump in promotional offers. Another might be clothes prices, which have fallen where the UK’s have risen.

Why should I care?

For markets: Vindication for central banks.
Slower-than-expected inflation probably vindicates the Bank of England’s decision not to cut interest rates last week, and it’ll probably encourage the Federal Reserve to hold steady when it makes its next US rates decision this month. Neither economy appears to be in dire need of the boost to inflation that lower rates would provide (by way of cheaper borrowing). That’s perhaps bad news if you were hoping to spend big this holiday season – but hey, at least rates aren’t likely to rise either.

The bigger picture: More good news than bad.
With employment and wage increases as strong as they currently are in the UK and US, consumers’ willingness to spend their hard-gotten gains is generally good for the economy. It’s good for Walmart too, but investors’ excitement for its earnings report on Thursday may be tempered by recent analysis from Bank of America: it showed consumer spending has been slowing recently.

Originally posted as part of the Finimize daily email.

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