UK inflation edges higher post-referendum: let’s not draw medium term conclusions

Data released by the Office of National Statistics (ONS) show the inflation has edged higher in July. It is the first reading of inflation since the UK referendum in June.

• The biggest of the increase was seen in the input costs for the producers. Producers’ input price index rose by 3.3 percent in July, up 4.3 percent from a year ago. Part of the cost seems to have been passed onto consumers. Producers’ output price index rose by 0.3 percent, whereas core output PPI rose by 0.4 percent.
• The rise hasn’t been dramatic for consumer prices, which edged up to 0.6 percent. Retail price index grew by 0.1 percent in July, whereas core CPI growth remained same as before.

It is important to note that this data is just not enough to draw any conclusions especially for the medium and the long run. The only conclusion that can be drawn is that the drop in the pound is having an impact on the cost of imports. However, if the volatility surrounding the sterling declines, the impact is likely to stabilize. It is too early to conclude that the drop in the pound would lead to sustained higher inflation in the UK in absence to domestic demand.

The sterling has edged higher on the inflation report and currently trading at 1.297 against the dollar, up 0.7 percent so far this year.