UK indeflation

Schäuble says yes
Compare and contrast: The Chilcot inquiry, which began in 2009, has yet to reach a conclusion. The Greek debt crisis, which began in 2009, came to a conclusion in 2010, again in 2012 and is about to come to another. And to think they say the EC is slow-moving.

Although 84% of Germans do not trust Greece to carry through the reforms demanded by its creditors, Germany's finance minister Wolfgang Schäuble has called on the Bundestag to approve a third bailout when it votes on the matter tomorrow. The IMF remains silent about its participation but it will probably play ball if Germany agrees to a rescheduling - oh no, not a reduction - of Greece's debt. Think sixty-year maturities at near-zero rates of interest, with Athens paying nothing on its borrowings forever.

Although the euro did not particularly feel the benefit of all this yesterday (it strengthened by a dozen tricks against the pound) its performance over the last week and month has not been at all shabby. On the week it is beaten only by the Swedish krona and on the month the euro is the clear leader, adding two and a half cents against sterling and one and a half US cents.

Milking the Kiwi
The NZ dollar came out on top yesterday after Russia lifted its ban on dairy imports from New Zealand. It received further help from expectations that today's fortnightly Global Dairy Trade index will rebound after five months of decline. The Kiwi strengthened by three cents against sterling.

This morning's minutes of the Reserve Bank of Australia's monetary policy meeting helped both the antipodeans. They were worth half a cent to each currency because, although, the RBA noted that the "the US dollar could appreciate further", there was none of the old stridency about overvaluation. 

Having looked perky as London opened, sterling had a less-than-positive day overall. It fell by an average of -0.4%, two thirds of a US cent, against the other dozen most actively-traded currencies. The pound's only gain was against the South African rand. 

The dominant data today will be the dozen statistics relating to UK inflation. Analysts forecast that the consumer price index will have fallen by -0.3% in June, putting the headline inflation rate at 0.0% for a second successive month. 

Continuing downward pressure on energy and commodity prices makes it unlikely that inflation will move appreciably higher until next year. The recent devaluation of the Chinese yuan underlines that expectation, as does the negative trend in UK factory gate prices.

In theory, endlessly low inflation should make it unlikely for the Bank of England to increase borrowing rates. In practice, as Monetary Policy Committee member Kirstin Forbes wrote at the weekend, "maintaining interest rates at current low levels during an expansion risks creating distortions". It also takes a year or two for rate changes to be fully-felt by the economy. So only an outlandish figure should affect sterling.