The market has played down today’s announcement that inflation rose by 0.1 per cent in the year to May, compared with 0.1 per cent drop into deflation the previous month.
Data from the Office for National Statistics showed the Consumer Prices Index rose marginally as upward pressure on the oil price fed through to higher fuel costs than in April.
As per usual, industry bigwigs lined up to have their say, so here is a few of the most interesting comments:
Chris Williams, chief executive of Wealth Horizon
The online investment adviser’s boss commented that the fanfare that accompanied the drop into deflation last month is starting to look a little over-hyped and called for an end to comparisons between the current economic position and that of the deflationary era of the 1930s.
He said: “Prices have been held down by the supermarket price war and the lower cost of petrol, but real wage growth is starting to grow at a steady rate and, while more needs to be done, if this can be sustained we may start to see this reflected more positively in future inflation reports.
He added that is not to say that the risk of a prolonged period of low inflation has disappeared, pointing out that the UK may hover around this mark for some months to come unless there are any further shocks to the system, like a sharp recovery in the oil price.
“It is therefore likely that inflation will continue to loiter near to zero for now, before getting back to work and starting to head up in the autumn.”
Ben Brettell, senior economist at Hargreaves Lansdown
The financial services giant’s economist put the change down to little more than a rounding error caused by seasonal factors surrounding the timing of the Easter holiday being at work in last month’s figures.
“The overall economic picture hasn’t materially changed; inflation is being kept low by cheaper fuel and a supermarket price war pushing food costs down, but both these factors are moderating and can be expected to gradually have a lesser impact on CPI.”
Core inflation - which strips out volatile components such as food and energy prices - rose slightly to 0.9 per cent, which Mr Brettell said shows that even accounting for the dramatic fall and partial rebound of the oil price, inflationary pressures in the economy remain weak.
“Consequently there is still little pressure on policymakers to raise interest rates in the short term, with the first rise pencilled in for the first half of next year at the earliest.”
Shaun Port, chief investment officer at Nutmeg
The online investment manager’s market guru suggested there is an increasing realisation that the recent global deflation period is passing.
He also stated that borrowers need to consider the impact of this on future higher mortgage rates, while savers should think about the impact of weaker bond prices will have on their portfolios.
“Balanced client portfolios have an underweight exposure to bonds and an associated overweight to equities and the bond exposure that remains has a lower than average sensitivity to changed bond yields.”
Vanessa Owen, head of retirement proposition at LV
The provider’s pension expert explained that remaining in a low inflation environment is a mixed bag for those concerned about the cost of living, such as retirees, who often spend a significantly higher percentage of their disposable income on bills.
The continued fall in the price of utilities will be welcomed, but many retirees rely on the interest paid on their savings to boost their savings, so the amount of interest they are receiving is likely to be considerably low.
“The pension freedoms that came into force in April gave retirees greater freedom as to how they take an income from their fund and some have taken their fund as a lump sum and have moved it to a cash account.
“Given we are still in a low interest rate environment, this may not allow retirees to make the most of their pension savings as growth will be negligible,” Ms Owen concluded.
Kevin Doran, chief investment officer at Brown Shipley
The private banking group’s investment head said that investors should not be fooled into thinking today’s figures paint an accurate picture of the state of UK inflation.
“If you look in the right places it is perfectly clear that there is an abundance of inflation, particularly in asset prices, with talk of bubbles in house, bond and equity markets not farfetched,” he commented, adding “I haven’t seen markets pricing a further rise and its potential risks correctly – I for one am avoiding fixed income, in part because of naïve inflation projections.”
peter.walker@ft.com
