MNI: 5 Things To Look For: UK January Inflation Data

Repeats Story Initially Transmitted at 04:32 GMT Feb 13/23:32 EST Feb 12

By Jamie Satchi

     LONDON (MNI) - The UK January inflation data will be released on Tuesday,

with analysts looking for a small slowdown in the headline rate.

     In December, smaller contributions from the airfares component of the CPI

basket offset higher fuel and tobacco prices to bring CPI inflation down 0.1pp

from November's five-and-a-half-year high of 3.1%. Data for January will help

show whether this marked the start of a sustained deceleration in inflationary

pressures over the coming year.    

              Jan    Jan       Jan    Jan        Jan         Jan

              CPI    CPI  Core CPI    RPI  PPI Input  PPI Output

            % M/M  % Y/Y     % Y/Y  % Y/Y      % Y/Y       % Y/Y

----------------------------------------------------------------

MNI Median   -0.6   +3.0      +2.6   +4.0       +4.2        +3.0

Prior        +0.4   +3.0      +2.5   +4.1       +4.9        +3.3

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

attention.

     - Jan Market Consensus Correct Half of the Time. 

     The market consensus, taken from Bloomberg, looks for a moderation in

headline CPI to 2.9%, below the MNI survey median of a no change outcome.

Generally, the market has done a decent job forecasting the January result,

getting it spot on on five of the last 10 January's. There is a slight tendency

to overestimate however, with the market's consensus January forecast missing

the actual January result by +0.1pp four times in the past decade - three of

those in the past four years. A fall in CPI to 2.8% would, however, constitute a

significant shock.  

          Jan    Jan    Jan    Jan    Jan    Jan     Jan     Jan     Jan     Jan

         2008   2009   2010   2011   2012   2013    2014    2015    2016    2017

--------------------------------------------------------------------------------

Actual   +2.2   +3.0   +3.5   +4.0   +3.6   +2.7    +1.9    +0.3    +0.3    +1.8

Survey   +2.3   +2.7   +3.5   +4.0   +3.6   +2.7    +2.0    +0.4    +0.3    +1.9

     - January Will See Implementation of New Basket Weights. 

     At the start of every year the ONS reassess the components of its baskets

and the weights attached to each component. While we have had no indication of

any specific amendments, weight changes across categories will be made typically

ranging somewhere between -1.5 and +1.5. Last year, relative to 2016, the

adjustments saw the basket skewed more heavily towards goods than services while

the biggest changes across the 12 primary basket components were seen in the

transport, communication, education and restaurants/hotels categories.   

     - Airfares upside risk. 

     Airfares tend to fall in January but there is a possibility that the fall

this January may have been softer than the 36% m/m fall recorded in January 2017

on account of the recent rally in oil prices. As such, some analysts think the

component, largely responsible for the moderation in inflation last month, could

be set for a role-reversal and provide upward pressure in January.     

     - Fuel Prices Will Drag Despite Recent Ascent. 

     While fuel prices have moved up in recent months, the 0.9% rise in petrol

pump prices recorded between last December and this January was lower than the

3.5% rise recorded between December 2016 and January 2017. Therefore, this

should mean that the sector provides a downward force to this month's numbers.  

     - Sterling Stronger in January. 

     The Sterling Effective Exchange rose to its highest level since July 2016

in January (79.0), up from 78.4 in December, and has now increased every month

since August. This should have helped restrain input price inflation, mainly via

the imported materials channel, producing the knock-on effect of also holding

back factory gate prices.  In December, imported materials and fuels rose by

4.5% y/y after a 6.5% y/y rise in November.

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

[TOPICS: MTABLE]