| UK: CPI inflation dips to 5% |
| 15.11.11 12:35 | |
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Weaker petrol and food drive slower inflation CPI inflation fell from 5.2% in September to 5.0% in October: a touch below the median market expectation of 5.1%, but not significantly so. Petrol prices accounted for around 0.1pps of the easing in CPI inflation, largely driven by last year's 2% MoM rise dropping out of the annual comparison. Food prices contributed around another 0.2pps to the decline, with slower inflation widespread across a range of food and beverages items. But partly offsetting those downward effects, a further rise in utility prices - as another of the UK's main energy suppliers raised domestic gas and electricity prices notably - pushed up on CPI inflation by nearly 0.1ppt. Core CPI inflation ticked up from 3.3% to 3.4%: above market expectations of a marginal fall, and continuing the small upside surprises in recent months. Clothing and footwear prices were the most notable upward contributor. More broadly, despite the weakness of the economy, there have been no signs of underlying inflationary pressures deteriorating. Of course, the VAT rise in early 2011 is contributing to the strength of core inflation at present. But, in addition, while sterling bottomed in around early 2009, the strong import prices (up around 7% YoY) are also exerting notable upward pressure. Nevertheless, the BoE expected CPI inflation to average 5.0% in Q4 as whole in their August Inflation Report, so this headline CPI data is in line with those forecasts. And today's open letter from Sir Mervyn King to the Chancellor (due every 3 months if CPI inflation remains above 3%) added little new to the MPC's previous views, or indeed to what would be expected, given that they embarked upon another £75bn of QE last month. The MPC continue to judge that the current strength of inflation is temporary, driven by VAT, import and energy price effects: were it not for those factors, they think it likely CPI inflation would have been below the 2% target. And they continue to judge that inflation will fall back sharply over the next few months, to around target by end-2012. Indeed, with reference to the £75bn more QE last month, King noted that slower growth in the world economy alongside weaker household and business confidence suggested weaker inflationary pressures than previously. In response, the Chancellor urged action from the Eurozone: "The Eurozone has the financial capacity to restore stability....the leaders of the Eurozone need to act without delay...". source: Bank of America ML |
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