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UK CommentConsumer price inflation stronger than expected in August

  1. Consumer price inflation picked up in August, but producer price inflation fell back slightly
  2. Inflation pulled up by some rather volatile components
  3. Sterling effect signals further downside to CPI inflation
Consumer price inflation picked up in August, but producer price inflation fell slightly back
UK consumer prices rose more than expected in August. CPI inflation increased to 2.7 percent y-o-y in August from 2.5 percent in July. The consensus expectation was for a slight decline to 2.4 percent. The Bank of England had expected CPI inflation of 2.4 percent in August and 2.6 percent in July. Core CPI inflation rose to 2.1 percent in August from 1.9 percent in July, while the consensus expectation was 1.8 percent. While consumer price inflation surprised on the upside, cost pressure, as reported by producer price indices, was in line with or slightly softer than the market expectation. The PPI Input index increased by 8.7 percent y-o-y in August, down from 10.3 percent in July. The August reading was slightly lower than the consensus of 9.1 percent. The PPI Output index increased by 2.1 percent y-o-y in August, down from 2.3 percent in July, and matched consensus.
Inflation pulled up by some rather volatile components
According to the Office for National Statistics, price growth was pulled up in August by a range of recreational and cultural goods and services, transport services and clothing. Transport, and in particular motor fuels, continued to make the largest upward contribution. Prices for recreation and culture registered their highest 12-month growth rate since January 2010. Within this category, the single largest contribution came from the highly volatile package holidays component. On the other hand, price growth was pulled down by furniture, household goods and telecommunications, where prices rose less than a year ago.
Sterling effect signals further downside to CPI inflation
The sterling effect on the CPI still signals that CPI inflation should continue to fall ahead. That said, producer price indices have held up and moved rather sideways lately, and the PMI surveys indicate that cost pressure could continue to persist in the near term. Consumer price inflation in August was pulled up by airfares, theatre admission prices and clothing, all volatile components, which suggests that inflation could soon fall back again. The PPIs, however, indicate that general cost pressure could persist in the near term. We therefore believe consumer price inflation could hold up somewhat in the very near term before continuing to slide further ahead.

 


Source: Macrobond


 


Source: Macrobond

Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

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