The most significant sign yet of Sterling induced inflation came last week, in the form of a high-profile row between Tesco and Unilever. While Unilever did not achieve the 10% price increase that was they were looking for, the result will likely set a precedent for other supplier/retailer disputes. While it is likely that suppliers, such as Tesco, may take the initial hit from the currency, over time, the full inflationary impact will come through to consumers. Therefore, it may take several years for the full effect of the currency movement is reflected in the headline inflation figures. However, some inflationary pressure is likely to be offset by a weaker domestic economy potentially limiting real wage growth and employment rates.

The publication of the Federal Reserve’s September meeting minutes indicated that the committee is coming close to raising rates. Three members backed another 0.25% rise with the committee as a whole advocating that either a hold or an increase were viable options. This opens the door to an increase in November or December which is now increasingly being priced into markets. Longer term interest rate expectations have now been lowered well into the future, creating a flat yield curve. However, a pick-up in inflation and a change of tone from the Federal Reserve could create a sharp rerating.

The oil price reached its highest level in twelve months on Monday. President Putin signalled that Russia was willing to join OPEC in cutting production, to support the price. However, this is contingent on OPEC reaching an agreement within their organisation, which has proved difficult in the past. Iran is still keen on increasing production to pre-sanction levels before freezing production, and Saudi Arabia wants to ensure that they do not bear the majority of the cut. Traders have reacted positively to the news although they remain cautious of a negative outcome.

The UK and US CPI inflation are released on Tuesday with Chinese GDP on Wednesday and UK retail sales Thursday.