MNI: 5 Things To Look For: UK Inflation Data

--UK December Inflation Data Due For Release Jan 16

By Jamie Satchithanantham

     LONDON (MNI) - The UK's final monthly inflation data print for 2017 will be

released Jan 16, when we will see if CPI built on or receded away from the

near-six-year high hit in November.

     Ahead of the release, we outline five themes we feel warrant particular

attention.

     - CPI Inflation rose to 3.1% in November with all components in the index's

basket appreciating in y/y terms, as has happened every single month since

March. November's outturn was the highest since March 2012 and was 0.1% higher

than the Bank of England MPC's official forecast. The BOE previously

communicated their belief that CPI would peak in October before trending back

towards 2.5% by mid-2018. 

     - Driving CPI inflation past the 3.0%-mark in November was the transport

sector and specifically air fares. Despite falling by 10.4% m/m in November, air

fares fell by more in November 2016 leaving the sub-component accountable for

+0.06pp of the +0.09pp change in overall CPI. Air fares have tended to jump in

December as people look to spend the festive season with their families -- the

average percentage change in December air fares over the past decade has been

+34.3% m/m and +7.71% y/y. Therefore, there is a strong chance air fares will

support inflation again in December. That said, this effect will be restrained

somewhat given the weight applied to air fares has fallen from 7/1000 in Dec

2016 to 5/1000 in Dec 2017.        

     - Recreation and Culture also came in strong in November. The category grew

3.1% y/y -- the strongest outturn since Jan 2010 -- driven by mainly by the

sales of computer games. Prices of PC games are heavily dependent on the

composition of the best seller charts at the time of ONS' survey and thus tend

to fluctuate a lot on a monthly basis. Prices of items within the Games, Toys

and Hobbies category (which captures PC games) have generally dropped on a m/m

basis in December and so some reversal of November's strong outturn could be on

the cards in December.   

     - One thing we do know for sure is that fuel prices will exert an upward

influence on CPI inflation in December. Petrol prices rose 0.71% between

November 2017 and December 2017 but fell 0.68% during the same period in 2016.

Diesel prices rose 0.62% between last November and December while were broadly

unchanged in between the same two months in 2016. The base effects from each of

these will mean that fuels will provide an additional 0.036pp to the monthly CPI

change in December.    

     - The Sterling Effective Exchange rose to its highest level since May in

November (77.7) and made up further ground in December, rising to 78.3. This

should have helped ease the rate of inflation on imported materials which

account for roughly two thirds of overall Input PPI. In November, imported

materials and fuels rose by 7.4% y/y after a 4.1% y/y rise in October.

     BONUS:

     - December's BRC Shop Price Index (SPI) showed prices falling at a faster

rate compared to November, the fastest since March 2017 in fact. This was led by

a 2.1% fall in non-food prices, as retailers aimed to lure Christmas shoppers on

a stretched budget, and partially offset by a 1.8% rise in food prices. The

survey is not seasonally adjusted and thus is sensitive to promotions, weather

and other distorting effects. UK food retailer Sainsbury CEO Mike Coupe said Jan

10 supermarkets were "over the hump" of sterling driven inflation and food

prices were likely to fall in the next 6 to 9 months.

--MNI London Bureau; +44 203-586-2226; email: jamie.satchithanantham@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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