UK inflation stays at 0.6%YoY - ING

James Knightley, Senior Economist at ING, notes that the UK inflation remained unchanged despite sterling's sharp fall as clothing and restaurants offset food and fuel price rises

Key Quotes

“UK consumer price inflation has come in at 0.6%YoY in August, the same rate as in July. The market had been expecting a slightly stronger number (0.7%YoY) while the core rate (excluding food and energy) remained at 1.3% versus expectations of an increase to 1.4%. Pipeline inflation pressures were also a little weaker than expected with PPI output inflation rising to 0.8%YoY from 0.3% versus the market forecast of a rise to 1%YoY.

The main upsides to CPI came from food and transport, which is unsurprising as food and energy prices tend to be impacted by currency moves more quickly than other components. However, there was offsetting downsides from lower clothing and footwear prices along with restaurants and hotels. It is possible that better weather and the Olympics encouraged some promotions here.

In terms of the outlook for CPI, consensus expectations for next year have been pushed higher because of sterling’s sharp depreciation. Sterling also fell sharply during the global financial crisis, but this time round we haven’t had the increases in commodity prices that contributed to inflation rising above 5% in 2008 and 2011, nor the VAT hikes. Therefore, fears of a surge in inflation appear misplaced in our view. Nonetheless, the plunge in sterling means that CPI will probably push up towards 3% by the end of 2017. This won’t be a constraint on further Bank of England policy easing should the economy weaken.”