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Inflation has taken a backseat in monetary policy as central banks have desperately tried to restart the economy.
However, it could be coming back into relevance now as the economic situation normalizes.
Sudden increases in inflation could put a cap on what central banks can do to boost the economy in the near term, and therefore have a larger weighting on currency moves.
UK Keeps Calm, Carries On
Over the weekend, BOE member Haldane said he saw the UK economy recovering faster than expected.
Although we don’t expect the comments to translate into any change in monetary policy soon, it might signal that easing will be coming to an end soon.
Inflation still allows the BOE plenty of room to keep stimulus flowing, as it’s quite below the 2.0% target.
Projections are for July’s yearly change in CPI to come in at just 0.6% compared to 0.7% prior. But on a monthly measure, expectations are for it to inch higher to 0.1% compared to -0.1%.
Unexpectedly higher inflation might ...
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