U.K. consumer price inflation accelerates in August, to continue to move upward

Consumer price inflation in the U.K. resumed its upward momentum in August. The headline inflation reached an annual rate of 2.9 percent, accelerating from July’s print of 2.6 percent. Consensus expectations were for inflation to have accelerated to 2.8 percent. The outturn matched May’s four-year high.

Core inflation, which excludes energy, food, alcohol and tobacco, also rose sharply, reaching 2.7 percent in August from July’s rate of 2.4 percent. Core rate also exceeded consensus expectations of 2.5 percent. The headline inflation figure was also matched by the move in RPI inflation that pushed up to 3.9 percent in August, with both this and the RPI index at 274.7, well ahead of consensus expectations.

The rise in August CPI gave further evidence of the continue effect of last year’s sterling depreciation, with most of the rise because of those components of the CPI that are particularly sensitive to movements in the exchange rate, stated Lloyds Bank in a research report.

Compared to last year, prices of footwear and clothing rose 2.4 percent on a sequential basis, whereas prices of furniture rose 1.8 percent sequentially. Both factors added positively to the annual rate. The upward move was also boosted by higher energy costs, especially for petrol/diesel prices.

The sharp rise in August now leaves inflation over the quarter on track to exceed the Bank of England’s forecast of 2.7 percent in the third quarter. This was made at last month’s inflation report.

“We expect the push from a weaker sterling and the remainder of the hikes in domestic energy tariffs announced so far will continue to impart clear upward pressure to inflation”, stated Lloyds Bank.

For some time, expectations were for inflation to rise a little more sharply than that expected by the BoE, peaking at 3.1 percent in the fourth quarter. The report released today underpins this view.

“While we continue to view the overshoot relative to the 2 percent target as one the MPC will be willing to look through, such a relaxed approach will require ongoing corroboration in signs of decelerating economic growth, notably in household spending and continued indications of subdued wage growth”, added Lloyds Bank.

At 16:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bullish at 158.196, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 54.3853. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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