inflation

As UK food prices soar, the CPI rose to 4.4% in the largest single jump with the highest rate since this data has been recorded in 1997. This is over twice the inflation target for the UK at 2%. With such high inflation data, the chances of a UK rate cut have become very slim.

According to Philip Shaw, an economist from Investec: "It is very disappointing data with widespread signs of higher price pressure...It will undoubtedly convince some members of the Monetary Policy Committee (of the BOE) to vote for higher rates but we doubt they will reach a majority."

For an analysis of the Bernanke comments and why it might be important for the dollar, please click on the following Attached File.

The inflation goes higher and the dollar comes down.  EURUSD has no problem getting through the 1.5571 level.  Support at that level now.

With the recent higher than expected inflation reports for both CPI and PPI, the market will be watching what the Fed Officials say in terms of the key words "Inflation Expectations".  It is ok in the Feds eyes to have inflation as long as Inflation Expectations from consumers and businesses don't materialize. 

If it is perceived that Inflation Expectations are starting to rise, the Fed may actually be forced to raise rates (according to their words at least) as the Fed would be concerned about the prospects for spiraling inflation which is just no good.  

German state of Hesse CPI +0.2% m/m vs consensus +0.1%. 

German state of Bavaria CPI +0.1% m/m