CPI in UK Rise to 3.3%, Stocks Gain

123jump.com Staff
17 Jun, 2008
New York City

UK stocks edged higher despite a rise in CPI index and expectations of higher inflation towards the end of the year. CPI in May rose to nearly 10-year high to 3.3% and the Bank of England Governor King suggested higher inflation in the months to come. UK prices have risen 8% as retail fuel prices have increased 20% in the last five months.

[R]1:00PM New York, 7:00PM London - UK CPI inflation rate rises to 3.3% in May. Aluminium Corp. of China comments nudge Rio Tinto higher.[/R]

London market averages gained despite a letter by the BOE Governor Mervyn King to Alistair Darling that showed that inflation might accelerate to 4% in the second half of the year. Banks rose on strong market sentiment after Goldman Sachs reported better than expected earnings.

Market sentiment

In London trading FTSE 100 rose 1.16% or 67.3 at 5.861.90. Of the 102 FTSE 100 stocks 80 rose, 22 declined. Eurasian Natural led advancers in the index shares with a rise of 6.20% followed by Amec Plc increasing 4.79%.

UK CPI inflation rate accelerates to 3.3% in May

The Bank of England Governor Mervyn King wrote the Chancellor of the Exchequer Alistair Darling in a letter published by the central bank on its website today that the CPI inflation rate rose from 2.1% in December to 3.3% in May.

King noted that the unprecedented gain was due to the unexpected increase in the price of food, fuel, gas and electricity, which accounted for 1.1 percentage points of the 1.2 percentage points gain in the CPI inflation rate since last December.

The UK’s retail food prices have advanced 8% as world agricultural prices rose 60%, while retail fuel prices have spiked by 20% in response to the 80% leap in global oil prices.

According to the Governor, “inflation is likely to rise significantly further above the 2% target in the next six months or so” on the continued increase in oil prices and the depreciation of the sterling that will put pressure on consumer prices. Inflation is likely to rise above 4% in the second half of the year.

“The path of bank rate that will be necessary to meet the 2% target is uncertain. The MPC will continue to make its judgement about the appropriate level of the bank rate month by month,” said King in his letter to Chancellor Darling.

However, in response to the letter Alistair Darling noted that the rise in inflation in the wake of the sustained commodity price stocks has been moderate compared with the behavior of the economy in the 1970s and 1980s.

Gainers & Losers

Eurasian Natural led advancers in the FTSE 100 index shares with a gain of 6.20% followed by rises in Amec Plc of 4.79%, in Lonmin Plc of 4.38%, in Anglo America of 4.05%, and Whitbread of 3.93%.

Commodity stocks rose after the Australian newspaper reported that Aluminium Corp of China President Xiao Yaqing said the company might increase its stake in Rio Tinto if favorable market conditions prevail. BHP Billiton increased 3.81%, Rio Tinto spiked 3.48%.

Whitbread gained after reporting that revenue jumped 7.1% in the 13 weeks ended May 29.

Financial stocks also edged up as Goldman Sachs reported that second quarter net income dropped 12% at $2.09 billion from the same period a year ago but beat analyst forecasts. Barclays surged 3.50% and Royal Bank of Scotland jumped 2.66%.

Home Retail Group led decliners in the FTSE 100 index shares with a fall of 2.87% followed by losses in Reed Elsevier of 2.87%, in Persimmon Plc of 1.96%, in Standard Chartered of 1.77%, and British Energy of 0.91%

Homebuilders fell as the central bank forecasted that the CPI inflation rate will accelerate to 4% in the second half of the year.

Retailers dropped as well. Next Plc shed 0.75% and Wolseley declined 0.35%.

Asian markets review

In Tokyo Nikkei 225 Index closed lower 6.00 or 0.04% to 14,348.37, in Hong Kong Hang Seng index increased 28.30 or 0.12% closed to 23,057.99. In Australia ASX 200 index higher 51.00 or 0.95% to close 5,422.70. In Malaysia KL Composite index decreased 10.30 or 0.83% closed to 1,227.76.

In South Korea Kospi Index decreased 10.11 or 0.57% to close at 1,750.71, in Thailand SET index closed lower 10.42 or 1.32% to 777.17 and Indonesia JSE Index edged decreased 20.07 or 0.84% to 2,377.98. Sensex index in India increased 301.08 or 1.96% to 15,696.90.