Commentary Directory
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- A Strong March Leads to a Surge in Chinese GDP in Q1 2023
- Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers
- Choppy GDP Means UK Should Avoid Q1 Recession
- Japanese Consumer Confidence Jumps to Highest Level in Over a Year
- The End of Summer Sees the End of Disinflation in Europe
- Labor Market Indicators are Starting to Unify on Easing in Hiring
- Inflation and Tight Financial Conditions Weigh on the German Consumer
- Euro Area Money Supply Contracts for the First Time Since 2010
- Dismal Economic Data Out of Germany
- Core Durable Goods New Orders See Gentle Uptrend in July
- More UK Data Pointing to Q3 Decline
- Whispers of a UK Contraction in Q3
- Japan's Core Inflation Resumes Uptrend in July
- Early July Economic Data Leads to a Sharp Increase in Q3 Growth Expectations
- UK CPI: Energy Inflation Crashes but Services Inflation is Still Sticky
- China's Weak Start to Q3 Means More PBoC Easing
- A Breather for the Eurozone as Inflation Hits Two-Year Low
- Germany's September CPI Report: A Clearer Picture of Inflation Trends
- US Manufacturing Demonstrates Resilience Amidst Volatility in August
- The ECB Prepares to Address Excess Liquidity Through the MRR
- Bank of Japan is Too Optimistic on Inflation
- The Bank of England Pauses in a Near Split Decision
- UK Inflation August Update: A Precursor to the Bank of England's Announcement
- Housing Starts Tumble in August Amid Rising Mortgage Rates
- US Retail Sales Grow at Fastest Monthly Rate Since the Start of the Year
- US Consumer Prices Surge in August Driven by Energy Costs
- August NFIB Survey Showed a Tough Environment for Small Businesses
- All Signs Point to a Weaker Labor Market in August
- Chinese CPI Trying to Buck the Deflation Trend
- Energy Prices Rise but the Core Disinflationary Trend is Maintained in September
- PPI's Quiet Rise and the Energy Elephant in the Room
- Small Businesses Grapple with Inflation and Financial Strain in September
- A Wacky September Jobs Report Shows Strong Labor Market
- A Look at the Fragile US Labor Market Ahead of the Nonfarm Payrolls Report
- Thoughts on GME and This Week in the Stock Market
- Record Home Price Levels Point to Strength in Post-Pandemic Economy
- The Stock Market Looks Overvalued, but It's Probably Not
- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
- Political Polarization Intensifies with Another Impeachment Along Party Lines
- Metal Demand Has a Bright Future in 2021 and Beyond
- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
- What's in the $900 Billion Relief Plan?
UK Inflation August Update: A Precursor to the Bank of England's Announcement
Jacob Hess
September 20, 2023
- UK
- Inflation
The UK's inflation data for August, released just before a highly anticipated Bank of England announcement, will set the stage for a huge decision of whether to pause or hike once again. The Consumer Price Index (CPI) for the UK rose by 0.3% MoM, reaching an annual rate of 6.7% YoY, a slight dip from July's 6.8%. This marks the lowest inflation rate since February 2022, a notable decline from the peak of 11.1% YoY in October 2022. The primary driver of this month's inflation was energy, mirroring trends observed in other countries. Despite a 1.7% MoM surge in the UK's energy CPI, it remains down by -3.2% YoY. Meanwhile, food inflation, which previously peaked at 14.8% YoY, has moderated, registering a 0.5% MoM increase and settling at 12.6% YoY. This reduction was influenced by a 1.5% MoM rise in alcohol and beverage prices, while non-processed and seasonal food prices both experienced a decline.
The surprise today was in the core CPI, which saw a modest 0.2% MoM increase, bringing the annual rate down from 6.9% YoY to 6.2% YoY. This deceleration was largely attributed to the services sector, where prices remained unchanged for the month, resulting in a YoY rate of 6.8%. Several service segments, including travel & transport (-0.2% MoM), package holidays & accommodation (-1.0% MoM), and non-catering recreational & personal services (-0.8% MoM), reported deflationary trends. Consequently, the combined impact of the recreation & culture and restaurants & hotels segments led to a 0.24 ppt reduction in the annual CPI rate, though this was almost entirely offset by the influence of energy prices on the transport index. Goods inflation, influenced heavily by energy and food prices, rose by 0.5% MoM, reaching 6.3% YoY. Some segments, such as household goods (0.2% MoM) and non-energy industrial goods (0.3% MoM), showed signs of disinflation. Recreational goods prices actually declined (-0.2% MoM).
Producer Price Index (PPI) movements in the UK underscored the volatility of energy prices. Both input and output producer prices witnessed an uptick, largely due to surging crude oil input prices (12.1% MoM) and petroleum production prices (7.7% MoM). Notably, of the output PPI segments only petroleum products showed an upward contribution to the change in the annual inflation rate, at 1.42 ppts. This upwards contribution was greater in magnitude than the sum of the contributions of the other product groups.
The Bank of England, which has been a bit more hawkish than its other developed market central bank peers, has been closely monitoring wage and core CPI pressures, which have been more persistent in the UK than elsewhere. This latest report provides one of the first pieces of tangible evidence of inflation easing, primarily driven by a slowdown in service price growth and the largest deceleration in core CPI since the pandemic ended. However, most of disinflation was seen in recreation and travel categories and in just this one month, so it might be risky to change the perspective on inflation based on such a short-term, limited trend. On the other hand, there are signals from the labor market that the demand for hiring is cooling with vacancies falling and the unemployment rate starting to tick up. With that in mind, the Bank of England should be able to get away with a pause, and a clear guidance that it will raise rates in the future if progress on inflation is reversed.