LEX Why it is that investors react to so-called headline numbers is one of the many mysteries of finance. From company results to retail sales figures, the truth hidden in the detail is often ignored. The public care even less for subtleties. With inflation, for example, efforts are made to present the data in a variety of different ways – by stripping out volatile components such as food and energy prices. However, it is the headline numbers that always make the news.
And because headline inflation affects expectations, a close eye should be kept on the last few months of this year. Year-on-year comparisons will be strongly affected then by the plunge in energy prices at the tail-end of last year. In the US, for example, the seasonally adjusted consumer price index fell 2.4 per cent in July. Other things being equal, and adjusting for the small change of the weighting of the energy component in the index, headline inflation will start to rise on a year-on-year basis in November and then peak at 1.6 per cent in January.
