Strong wage numbers from the UK labour market report may paint a false picture for inflation
The jobs report was a good one. The claimant count miss slides under the carpet as the eyes are on wages. They reversed the dip we saw last month and so add some price pressure to inflation.
BOE watchers may take these numbers as a sign that CPI will start rising. They may be right but caution is still warranted. There's far bigger forces at play on inflation than wages, as the chart below shows
UK average earnings vs CPI
Obviously wages rising are good news but there isn't any transition into inflation yet. That will likely be the warning from the BOE at the inflation report later. Inflation may have bottomed or there may be a bit left in the downside tank. With oil prices rebounding that will start filtering through more markedly over the next few months, and it will probably have a large impact by showing fairly big rises in CPI. Such is the nature of our inflation make up in the UK
The numbers today are bullish for the BOE report but I think the risk is that Carney will try to keep the markets feet on the ground a while longer. If he doesn't then cable is going to fly. The way the pound has been behaving any warning on inflation could well be a decent dip buying opportunity, if we get a decent one
