News this past week:
- US economic growth disappoints as Dow Jones reaches 20,000
- Trump’s executive orders fail to stir markets
- UK High Court: Parliament must vote to trigger Brexit
- UK economy grows 0.6% in Q4
- Weaker yen boosts Japanese exports
James Klempster (CFA) of Momentum Global Investment Management shares his view:
A couple of weeks ago the December print for UK Consumer Price Index came in at 1.6% annualised compared to 1.2% a year earlier. Overall this seems to be a positive development for the UK and underlines the surprisingly cheery tone of the UK economy following the Brexit vote. Inflation at this level takes us a long way away from the dark days of perceived economic stagnation and the spectre of deflation that market participants were becoming anxious about a couple of years ago. Falling prices can quickly evolve into a deflationary spiral as consumers put off spending that they do not need to make in the anticipation that prices will be lower in the future, whereas in an inflationary environment customers are incentivised to bring spending forward wherever possible. Clearly, therefore, central bankers aim for a positive but comfortable level of price inflation wherever possible.