Pick-up in inflation is the real deal

The January consumer price data were the clearest sign yet that inflationary pressures are beginning to build. While inflation was boosted by a rebound in clothing prices and a recovery in vehicle inflation that look unlikely to be sustained, a wide range of measures now point to inflation rising over the rest of 2018. With last year’s tightening in labour market conditions feeding through to stronger wage growth, and the depreciation of the dollar providing a boost to goods prices, we think core CPI inflation will be above 2.5% by the end of the year.