Softer UK inflation data in August


The consumer price index for the month of August year-on-year has softened to 2.7 per cent from 2.8 per cent, in line with expectations.

The monthly figure for August has fallen to 0.4 percent following expectations of an increase to 0.5 per cent.

Inflation was unchanged in July.

July 2012 to July 2013, CPI met expectations of 2.7 per cent, marking a 0.1 per cent increase from June to June (2.8 per cent).

August 2012 to August 2013, the output price for goods produced by UK manufacturers (factory gate) rose 1.6 per cent. July to July had seen a 2.1 per cent rise.

August 2012 to August 2013 core factory gate prices - that excludes volatile components such as food, beverages, tobacco and petroleum products - rose 1.0 per cent - 0.1 per cent slower than last year (1.1 per cent).

Samuel Tombs, UK economist for Capital Economics:

We continue to think that CPI inflation is likely to fall back to the 2% target within the next few months – a development that would help to ease the squeeze on households’ real earnings and cool fears in the markets that one of the inflation knockouts to the MPC’s forward guidance is likely to be breeched.

The slack in the UK economy following years of weak performance will take time to improve and with that comes fairly benign price activity. Recent strength in sterling markets has also helped offset increase in oil prices that occurred during the escalation of tensions around the Syrian conflict.

Jeremy Cook, chief economist at the foreign exchange company, World First, said:

The slack in the UK economy following years of weak performance will take time to improve and with that comes fairly benign price activity. Recent strength in sterling markets has also helped offset increase in oil prices that occurred during the escalation of tensions around the Syrian conflict.

Unfortunately, while this will be good news for Mark Carney and the team at Threadneedle Street given the inflationary caveats to their forward guidance plan, to the man on the street, who are seeing wage increases at only 1%, this still means that life and spending decisions remain tough, and in reality, talk of a recovery remains merely talk.…

Jens Larsen, chief european economist, RBC Capital Markets:

We expect CPI inflation to fall over the coming months, with upside risks from import price pass-through and prospective but as of yet unannounced increases in utility prices. The Bank of England has made some allowance for these effects, accounting for a slower decline in inflation in their forecast: the MPC only expects to reach target inflation by 2015. We think that in the absence of utility price surprises, inflation may reach the target in the first half of 2014.