Divyang Shah, Senior IFR Strategist
What is interesting is that none of the 29 economists polled by Reuters were looking for a number below 2.5%.
Along with the inflation data we also had PPI, and the input price component of PPI went back into negative territory which was seen in the middle of last year.
Input prices tend to lead what happens with CPI by around two months so the weakness here suggests that the improved tone on inflation will likely continue over the next couple of months. This should be just about enough to provide the flexibility that the new BoE governor needs should he choose to use it at his first meeting in July.
The lower inflation readings coupled with still controlled inflation pressures could be enough to convince the hawks of the need to provide a fragile and tepid recovery some extra stimulus.
At the very least forward guidance will likely play a pivotal role and help to flatten the shorter end of the yield curve.
