UK inflation to slip back below zero

The surprise in UK's last month's data for July was that core inflation jumped from 0.8% yoy to 1.2% yoy, driven largely by higher clothing inflation, taking headline inflation from zero to 0.1% yoy. At the time, the ONS surmised that this blip was the result of distortions created by the differing timing of summer sales this year and last. 

On that basis, core inflation was expected to fall back in August as that distortion was unwound. In support of that view, already there is preliminary price information for August from the BRC shop price survey and that does, indeed, show that clothing deflation intensified in August.

Turning to the non-core price components in August, food price deflation may have eased a little but oil prices continued to fall which pushed down prices of vehicle fuels even further. An unusual feature that we need to take account of currently is the dip in diesel prices below those of petrol. 

"The downward impact is greater than the fall in petrol prices alone would suggest. The overall result of these core and non-core developments should be to have driven down inflation from +0.1% yoy to -0.1% yoy", says Societe Generale.