FTSE Underperforms After UK PPI

Stronger than expected UK PPI supports recent signs that inflation is accelerating. That has reinforced concern the BoE’s King might have to write a letter to the Chancellor explaining why inflation is overshooting before the UK election and generated talk that the central bank could raise rates before the Federal Reserve.

Today’s PPI input prices rose at the fastest pace since Nov 2008 or 6.9% y/y (6.5% exp) up from 4.0% in November. Output prices also increased at a 3.5% y/y pace (3.1% expected) from 2.9% in November. The sharp jump in input prices is due in part to base effects and to the jump in energy prices while import prices also jumped. The gap between the rise in input vs. output prices suggests that profits may be being squeezed and may account for the FTSE100’s and the Ishares FTSE 1—(NYSE: ISF) underperformance today.