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On first sight this is a worry. However, the Bank has been stressing for some time that this rise is a short-lived base effect brought about by last year’s temporary reduction in VAT and by last autumn’s in oil prices. The Jan CPI release is due on Feb 16. The Bank has already made it clear that January CPI is set to rise further from the surprisingly high 2.9% y/y December level. However, CPI did not fall to the lows that the Bank had originally been predicting. Insofar as the Bank predicted after the Feb MPC meeting that inflation will ‘fall below target for a period’ and that the pace of growth this year will be ‘gradual’, there seems little risk that the Inflation Report will change expectations that there will be no BoE rate hike before Q3. The BoE’s inflation target is 2% and a level at 3% or above will force Governor King to write a letter of explanation to the government. Last year the Bank was correct in estimating the CPI would fall sharply. There is a caveat to this, however. This suggests that CPI may have a modest upward bias relative to the Bank’s predictions. The Bank of England is due to release its Quarterly Inflation Report on February 10.

Friday rounds out the week with industrial production, French nonfarm payrolls and German and most other Eurozone 4Q GDP reports. French industrial production is the only thing of note on Wednesday. Bank of France sentiment kicks things off on Monday while German trade and German consumer prices are due on Tuesday. The Eurozone calendar is not terribly busy either.

New Zealand sees home prices on Sunday, credit card spending on Tuesday, business PMI on Wednesday and retail sales on Thursday. Australia has consumer confidence on Tuesday and the employment report on Thursday. The calendar down under is modestly busy.

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