UK CPI Soars to 10-Month High in January; Central Bank Wary of Rate Cuts

Data Interpretation

Summary:

The UK inflation rate surged to its highest level in 10 months, driven by rising food and airfare prices, as well as the introduction of value-added tax (VAT) on private school fees. According to the Office for National Statistics (ONS), the Consumer Prices Index (CPI) rose by 3.0% YoY in January, exceeding the 2.5% increase recorded in December. This outpaced economists' and the Bank of England's (BoE) expectations of a 2.8% rise, potentially reinforcing the central bank's cautious stance on interest rate cuts aimed at stimulating economic growth.

On February 19, 2025, the ONS released its latest inflation report, revealing the following key data:

UK CPI Up 3.0% YoY in January (vs. 2.5% prior), Down 0.1% MoM (vs. +0.3% prior);

Core CPI Rises 3.7% YoY in January (vs. 3.0% prior), Falls 0.4% MoM (vs. +0.3% prior).

The report showed that the CPI rose by 3.0% over the 12 months to January 2025, up from 2.5% in the 12 months to December 2024. On a monthly basis, CPI fell by 0.1% in January 2025, compared with a 0.6% fall in January 2024. The annual inflation rate in January reached its highest level since March, complicating the BoE's plans to gradually cut interest rates amid a weak economic outlook.

On a disaggregated level, the introduction of VAT on private school fees at the beginning of the year contributed to the rise in the 12-month inflation rate. Education costs increased by 2.4% in January, compared to no change in the same period in 2024. Fuel prices also played a role in driving up overall inflation, with retail gasoline prices rising by 0.8% in January, compared to a 2.0% decline in the same period last year. The increase in airfare prices, which fell by 19% MoM in January (compared to a 38.9% decline in January 2024), was one of the reasons for the weaker-than-expected inflation in December 2024. These changes in education and airfare prices led to an increase in the services inflation rate from 4.4% to 5.0%, which was below market expectations of 5.1% and the BoE's forecast of 5.2%.

Overall, the inflation rate has risen further above the BoE's 2% target, indicating that the central bank will face greater difficulty in lowering interest rates to boost an economy that grew by just 0.1% in the final quarter of 2024. In its latest meeting in early February, the BoE cut the benchmark interest rate to 4.5%, adopting a "gradual and cautious" approach to future rate cuts.

UK January CPI Report

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Warren Takunda

Stocks

Global stocks were steady on Wednesday, with European and U.S. shares at record highs, as traders cautiously shrugged off U.S President Donald Trump's latest tariff threats on auto, semiconductor and pharmaceutical imports.

Since Trump's inauguration four weeks ago, he has imposed a 10% tariff on all imports from China, on top of existing levies. He has also announced, and delayed for a month, 25% tariffs on goods from Mexico and non-energy imports from Canada.

Trump told reporters on Tuesday that sectoral tariffs on pharmaceuticals and semiconductor chips would start at "25% or higher", rising substantially over the course of a year. He intends to impose similar tariffs on autos as soon as April 2.

But the market reaction to Trump's threats was muted as investors increasingly see them as bargaining tools, although the U.S. dollar was on the front foot as geopolitical worries, including tense Russia-Ukraine negotiations boosted safe-haven flows.

"I think investors assume that deals will be done and that tariffs will be delayed and reduced," said Ben Bennett, Asia-Pacific investment strategist at Legal & General Investment Management in Hong Kong.

"I’m worried that the disruption and uncertainty caused by such headlines is underestimated. At the margin, this could delay business investment and hiring decisions... but that’s not how most investors are thinking it seems."

European futures pointed to a muted open after the benchmark stock index closed at a record high on Tuesday, taking its 2025 gains to 10%, far outperforming the S&P 500 and the Nasdaq.

UK stocks futures were little changed ahead of inflation data that will likely highlight why the Bank of England has been has been cautious about cutting interest rates despite a weak overall economy.

In Asia, the focus has been on Chinese tech stocks, which have been on a tear recently as the emergence of AI startup DeepSeek and a meeting between Xi Jinping and business leaders in the sector lifted sentiment.

"Green shoots are emerging in China’s economy and DeepSeek is injecting a shot of adrenaline into the sector," said Thomas Rupf, co-head Singapore and CIO Asia at VP Bank.

"While trade risks persist, tech optimism remains strong as the prospect of low-cost AI applications drives a reassessment of growth potential."

Hong Kong's Hang Seng Index fell 0.4% as investors pocketed some profits. The index has risen 14% so far in 2025, jostling with Germany's DAX index for best-performing market in the world.

Hang Seng Tech stocks has far outperformed tech-heavy Nasdaq since late September when China unleashed stimulus measures

KIWI CLIPPED

The New Zealand dollar was 0.3% higher at $0.5722 after the central bank slashed interest rates by 50 basis points to 3.75% as expected but hinted its aggressive cuts were set to slow.

The Australian dollar eased 0.11% to $0.6347 a day after the central bank delivered its first rate cut since 2020, but cautioned about the prospects for further easing.

Overnight, the U.S. benchmark S&P 500 <.SPX > squeaked past its previous record closing high as all three Wall Street indexes seesawed between gains and losses for much of the session before rising in the closing minutes.

European leaders vowed to step up support for Ukraine as the U.S. and Russia held bilateral talks on the war this week. Investors also hope this weekend's German election will lead to economic stimulus.

Minutes from the U.S. Fed's January meeting, when the central bank held borrowing costs at 4.25% to 4.5%, are due later on Wednesday. That follows hawkish comments from Fed Chair Jerome Powell in testimony to Congress last week and hot consumer price data.

Brent crude oil rose 0.28% to $76.05 a barrel as traders awaited the outcome of the U.S.-Russia talks in Riyadh.

Spot gold eased a bit to $2,932 an ounce, after hitting a record high last week on safe haven demand.

Source: Reuters

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Glendon

Economic

Forex

EUR/USD started a decent upward move above the 1.0460 resistance. USD/JPY declined below 153.00 and is currently consolidating losses.

Important Takeaways for EUR/USD and USD/JPY Analysis Today

The Euro found support and started a recovery wave above the 1.0400 resistance zone.

There is a connecting bearish trend line forming with resistance at 1.0460 on the hourly chart of EUR/USD at FXOpen.

USD/JPY is trading in a bearish zone below the 153.00 and 152.50 levels.

There is a short-term rising channel forming with support near 151.60 on the hourly chart at FXOpen.

EUR/USD Technical Analysis

On the hourly chart of EUR/USD at FXOpen, the pair started a fresh increase from the 1.0290 zone. The Euro climbed above the 1.0400 resistance zone against the US Dollar.

The pair even settled above the 1.0450 resistance and the 50-hour simple moving average. Finally, it tested the 1.0515 resistance. A high is formed near 1.0514 and the pair is now consolidating gains. There was a minor decline below the 23.6% Fib retracement level of the upward move from the 1.0292 swing low to the 1.0514 high.

Immediate support is near the 1.0445 level. The next major support is at 1.0400 and the 50% Fib retracement level of the upward move from the 1.0292 swing low to the 1.0514 high.

If there is a downside break below 1.0400, the pair could drop toward the 1.0375 support. The main support on the EUR/USD chart is near 1.0290, below which the pair could start a major decline.

On the upside, the pair is now facing resistance near 1.0460. There is also a connecting bearish trend line forming with resistance at 1.0460. The next major resistance is near the 1.0515 level. An upside break above 1.0515 could set the pace for another increase. In the stated case, the pair might rise toward 1.0550.

USD/JPY Technical Analysis

On the hourly chart of USD/JPY at FXOpen, the pair started a steady decline from well above the 154.00 zone. The US Dollar gained bearish momentum below the 153.00 support against the Japanese Yen.

The pair even settled below the 152.50 level and the 50-hour simple moving average. There was a spike below 151.50 and the pair traded as low as 151.23. It is now correcting losses and trading above the 50-hour simple moving average.

Immediate resistance on the USD/JPY chart is near the 23.6% Fib retracement level of the recent decline from the 154.80 swing high to the 151.23 low at 152.05.

The first major resistance is near the 153.00 zone and the 50% Fib retracement level of the recent decline from the 154.80 swing high to the 151.23 low. If there is a close above the 153.00 level and the hourly RSI moves above 60, the pair could rise toward 153.95.

The next major resistance is near 154.80, above which the pair could test 155.50 in the coming days. On the downside, the first major support is near 151.60. There is also a short-term rising channel forming with support near 151.60.

The next major support is near the 151.20 level. If there is a close below 151.20, the pair could decline steadily. In the stated case, the pair might drop toward the 150.00 support.

Source: ACTIONFOREX

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Warren Takunda

Stocks

Asia stocks were mixed Wednesday, as Chinese technology stocks faltered after a short-term rally.

The Hang Seng Index fell 0.27% to 22,915.70, while the Shanghai Composite was up 0.81% to 3,351.54. Japan’s Nikkei 225 slipped 0.27% to 39,164.61, following U.S. President Donald Trump’s threat to impose a 25% tariff on car imports that if implemented would adversely impact Japan’s economy.

Meanwhile, South Korea’s KOSPI gained 1.7% to 2,671.52. Australia’s S&P/ASX 200 was down 0.73% to 8,419.20.

China’s technology stocks slumped Wednesday after a brief bull run earlier in the week. Alibaba’s Hong Kong-traded stock fell 1.58%, while search engine giant Baidu fell 2.33% after it reported a 2% drop in revenue for its fourth quarter compared to a year earlier as artificial intelligence rivalry heats up in China.

Chinese video games firm Tencent saw its stock slip 1.37% while online services firm Meituan declined 3.24%.

“Hong Kong and mainland China led the sell-off, deflating some of the air from the risk-on balloon that had been floating Asia’s market rebound,” said Stephen Innes, managing partner of SPI Asset Management.

“Japanese stocks followed suit, with automakers Toyota and Honda taking a hit after Trump lobbed fresh threats — this time targeting autos, semiconductors, and pharmaceuticals with potential 25% tariffs,” he added.

The decline in Chinese technology stocks came even as U.S. stocks crept to a record as the S&P 500 nudged higher on Tuesday.

The main measure of Wall Street’s health rose 0.2% to finish just above its all-time closing high set last month.

The Dow Jones Industrial Average added 10 points, or less than 0.1%, while the Nasdaq composite rose 0.1%.

In energy trading, benchmark U.S. crude added 43 cents to $72.26 a barrel. Brent crude, the international standard, rose 40 cents to $76.24 a barrel.

In currency trading, the U.S. dollar weakened to 151.71 Japanese yen from 152.01 yen. The euro cost $1.0455, up from $1.0446.

Source: AP

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RBNZ

Data Interpretation

On February 19, 2025, the Reserve Bank of New Zealand (RBNZ) announced the outcome of its monetary policy meeting. The following is an interpretation based on publicly available data:

Building on the 125 basis points of rate cuts announced since mid-2024, the Official Cash Rate (OCR) was lowered from 4.25% to 3.75%. This move aims to reignite the stalled economy while cautioning against the increasing likelihood of international trade tensions, global growth slowdown, and geopolitical shocks.

Economic activity in New Zealand is showing signs of recovery, supported by lower interest rates and higher export revenues. However, potential GDP growth remains constrained due to persistent weakness in productivity gains and a decline in net migration. As a result, economic growth is expected to remain moderate, with global economic growth anticipated to stay subdued in the near term. The recent reduction in interest rates is expected to boost household consumption and encourage business investment. However, the full impact of these policy measures may take some time to materialize. The economic outlook remains aligned with the medium-term inflation target, providing confidence for the RBNZ to consider further reductions in the Official Cash Rate (OCR).

In recent months, New Zealand's inflation rate has declined to 2.2%, still near the midpoint of the target range. The central bank expects consumer price inflation to fluctuate in the short term due to the depreciation of the exchange rate and rising oil prices. In the coming months, inflation is projected to rise to 2.7% in the third quarter before falling back again. The RBNZ stated that it is fully capable of maintaining price stability over the medium term and addressing future inflationary shocks. However, uncertainties surrounding global tariff policies pose some risks to the economy.

Wage growth has slowed, consistent with the decline in labor demand and the reduction in CPI inflation. Employment levels and job vacancies have also declined, reflecting subdued economic activity. The labor market has weakened, with businesses reducing their demand for labor as economic conditions deteriorate. In the year to the December 2024 quarter, employment fell by 1.1%, and the unemployment rate rose to 5.1% in the December 2024 quarter. The labor market typically lags overall economic developments, and employment growth is expected to remain sluggish over the next year.

Near-term risks include a slowdown in GDP growth, while long-term risks involve U.S. tariff policies, which could potentially slow global economic growth. The RBNZ has stated that it is prepared to respond to any potential shocks and will take action as necessary to support the economy.

Reserve Bank of New Zealand Monetary Policy Statement

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Warren Takunda

Economic

A leaked draft of a second clean industry deal, prepared by the von der Leyen Commission, sets out key elements the European Commission deems essential to challenge the United States and China in the battle for global clean technology leadership.

“The ambition of the Clean Industry Deal is to make the EU a global leader in the circular economy by 2030,” according to the 22-page document seen by Euronews.

The plan says companies will be given “clear incentives to reduce carbon emissions within Europe.”

“A thriving new European industrial ecosystem for growth and prosperity” will be achieved by strengthening the six “business engines”, according to the text.

Affordable energy

The first is affordable energy, which is the subject of an action plan to be released alongside the International Development Conference on February 26.

The leaked message said the Commission would launch a pilot project for energy trading agreements for companies on the same day, in collaboration with the European Investment Bank.

Similar collaboration will be set up under the Network Manufacturing Package, which is specifically designed to address weaknesses in Europe’s transport networks that have been identified as obstacles to the electrification of transport and industry.

In both cases, the relevant amounts were left blank, indicating that the EU Executive Board has not yet agreed how much funding will be spent on these projects.

The plan also stresses the need to speed up the permitting process and simplify the gas market, while also offering recommendations on next year’s energy tariffs.

Stimulate demand

The second impetus is the creation of a “leading market,” which will be achieved in part through the upcoming Accelerated Decarbonization of Industries Act, already mentioned in von der Leyen’s policy priorities, which she has now promised to implement by the end of this year.

The EU will continue its efforts to build demand for hydrogen to replace fossil fuels in industrial processes. The Commission said it would “explain the rules for the production of low-carbon hydrogen in practice. ”

Other stimuli include measures to strengthen finance, increase circulation, access to essential raw materials, and strengthen global markets and international cooperation.

Finally, the vocational development center has acknowledged that there is a shortage of adequately trained workers in Europe and has promised to establish a skills union, which is due to be published on March 5, along with an action plan for European automakers.

The Commission is committed to its 90% emissions reduction target.

Greg van Elsen, who has published work on the Clean Industry Deal for Climate Action Network Europe, points out that the European Commission appears to be reluctant to compromise on its commitment to scientific advisers and propose a 90 percent reduction in greenhouse gas emissions by 2040.

The draft resolution echoes recent comments by von der Leyen, who stressed that Europe would “stay on course” on climate action.

“It is encouraging to see that the bill continues to move forward with the European Green Deal, which supports the 2040 climate target of reducing greenhouse gas emissions by 90 percent, accelerates the deployment of renewable energy and places renewables at the heart of the EU’s industrial strategy,” Van Elsen told Euronews.

He added that the bill “fails” to target energy savings or reduced resource use as a way to build a resilient economy.

“With the funding part lacking detail and ambition, the big question remains who will pay for it,” Van Elsen asks. “While the outlook seems to be positive overall, there are still several key issues that remain unanswered.”

Source: Euronews

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Statistics Canada

Data Interpretation

On February 18th, Statistics Canada released the January CPI report:

The unadjusted CPI rose 1.9% year-over-year (YoY) in January, up from 1.8% in December, and increased 0.1% month-over-month (MoM), compared to a decline of 0.4% in December.

The Bank of Canada's core CPI increased 2.1% YoY in January, up from 1.8% in December, and rose 0.4% MoM, compared to a decline of 0.3% in December.

The seasonally adjusted core CPI rose 0.3% YoY in January, unchanged from the previous month, and increased 2.2% MoM, up from 2.0% in December.

According to the report, the overall CPI has remained at or below the Bank of Canada's 2% target for six consecutive months. However, the 1.9% YoY CPI growth indicates a gradual economic recovery from the post-pandemic period. The 0.1% MoM increase in January also suggests a continued weakening of underlying inflationary pressures. Although the January CPI growth rate was higher than December's 1.8%, it remains well below the peak levels seen in recent years.

On a component basis, the modest rise in inflation was primarily driven by increases in gasoline and natural gas prices, which offset the downward pressure on prices resulting from the sales tax holiday. Energy prices in Canada surged by 5.3% YoY in January, following a 1.0% increase in December. Specifically, gasoline prices rose 8.6% YoY, while natural gas prices, which fell 5.5% in December, increased 4.8% YoY in January. The largest provincial increase in natural gas prices was seen in British Columbia, where prices rose by 12.8%. The sales tax holiday, implemented by the government, put downward pressure on the prices of food, beverages, restaurant meals, and children's clothing. Food prices fell 0.6% YoY in January, marking the first annual decline since May 2017.

The growth in housing costs, including mortgage interest and rental rates, continued to slow. In January, mortgage interest costs rose 10.2% YoY, down from 11.7% in December. Rental prices increased 6.3% YoY, compared to 7.1% in December. This represents the first MoM decline since August 2022, and market data suggests further potential declines in the future. However, housing remains the largest driver of overall inflation.

The data highlight a "dual-track" inflation scenario, with the rebound in energy prices offsetting policy-driven declines in consumer prices. Core inflation remains sticky but is trending weaker. The BOC will need to carefully balance the uncertainties of the external trade environment, including potential U.S. tariff threats, with its domestic price stability objectives. A gradual easing cycle may be initiated in the second quarter.

Canada CPI for January

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