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US Producer Prices Surge 0.6% in January

16 February 2017

United Kingdom consumer prices fell 0.5% in January with the year-on-year rate increasing to 1.8% from 1.6% the previous month given that prices had fallen more sharply in January 2016.

The increase in the inflation rate takes it closer to the Bank of England's target rate of 2%, which was last seen in December 2013.

Almost half of January's monthly increase in the consumer price index was driven by rising fuel prices, with the gasoline index up nearly eight percent while costs for housing, clothing and new cars also rose, according to the Labor Department.

But a pick-up in global crude prices, a volatile foreign exchange market, and relatively high domestic non-food and non-fuel inflation have fuelled concerns among RBI officials.

United Kingdom consumer price inflation accelerated to a 31-month high and input prices surged the most since 2008 in January, as a weak pound pushed up imported prices.

Rising energy costs have recently become a prime source of inflation, reversing a trend in recent years in which falling oil prices were suppressing inflation.

So-called core producer prices have climbed 1.6% in the past year, down from a two-year high of 1.8% two months ago.

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The National Institute of Social and Economic Research said GDP grew by 0.7 per cent over the three months to the end of January, following growth of 0.6 per cent for the last quarter of 2016.

Rising demand and a recovery in commodity prices have given a boost to inflation in recent months.

There was also an upward effect from food, where prices were unchanged between December and January but had fallen by 0.6% between the same two months a year earlier.

Even though the retail inflation is well below Reserve Bank of India's target of 5 per cent, it is unlikely that the central bank will go for a rate cut in the coming months.

Data released by the Department of Industrial Policy and Promotion (DIPP) showed food inflation continued to contract by 0.56% in January against a contraction of 0.7% in December.

Given the resilience of United Kingdom data so far, today's figures may provoke debate amongst Monetary Policy Committee members around the timing of the next rate rise.