Industrial production picks up 7.1% in Dec

GBP Rallies On Upbeat Inflation Data

Inflation in the vegetable segment slowed to 26.97 per cent. Prices of fruits, too, rose at a lower pace of 6.24 per cent last month.

Ben Brettell, senior economist at Hargreaves Lansdown, said following the latest inflation: "Inflation's now been above target for 12 straight months". Smartphone prices will be adjusted to account for more rapid technological advancement, while the cost index for used cars and trucks will change from a three-month moving average to a single month price change.

The dollar.DXY rallied against a basket of currencies. The fear was that strong inflation would lead to higher interest rates, raising borrowing costs for both individuals and corporations.

That would slow economic growth.

In the long run, "inflation is probably heading higher", Lewis Alexander, Nomura's chief economist, said in a preview.

"The Fed's task is complicated by the recent tax cuts and spending deal, which will stimulate the economy at a time when the labor market is already at, or close to, full employment".

Excluding the volatile food and energy components, the CPI shot up 0.3 percent.

The consumer durables have recorded growth of 0.9 per cent in December 2017. The year-on-year rise in the so-called core CPI was unchanged at 1.8 percent in January, also because of less favourable base effects. Only six of 70 economists surveyed by Bloomberg predict a 0.3 percent monthly gain in January CPI, above the median.

The core CPI is viewed as a better measure of underlying inflation trends.

However, the decline in Treasury prices, which move inversely to yields, was being limited by safe-haven bids as US stocks fell in the wake of the inflation data.

FILE PHOTO: A woman shops at an H&M store in New York City, U.S. December 23, 2017. The report sent Treasuries and stocks tumbling, as it added to concerns about an inflation pickup that have roiled financial markets this month.

US 2-year yields, in the maturity most sensitive to rate hike expectations, advanced to a two-week high of 2.159 percent, compared with 2.106 percent on Tuesday.

There is also a roughly 50% chance of a further increase in rates to 1% by the end of the year - a level last seen in 2009.

Inflation shows a slight slowdown for January giving a sign of relief for consumers.

Gasoline prices rose 5.7 percent last month, pushing up the headline index. However, we believe a large amount of improvement in consumer demand is likely to further rely more on imports rather than substantial pick-up in the domestic production.

Tobacco costs, meanwhile, grew faster at 0.4% month on month which was likely due to the remainder of duty price hikes coming through after being introduced in November.

Month-on-month, output prices edged up 0.1 percent and input prices climbed 0.7 percent.

The core CPI was boosted by rising rents.

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