MNI 5 Things: UK Aug CPI Could See Unwelcome Upward Surprise

By Les Commons

     LONDON (MNI) - The UK August CPI data will be released Wednesday. After

ticking up to 2.5% y/y in July primarily on the back of energy and computer

games, the data will reveal if these volatile components provided downside

pressure to bring the y/y rate back towards the 2.0% target. Here are five

things we feel are worth noting before the release.

                                   August

            August     August  Core CPI %     August   August PPI     August PPI

         CPI % M/M  CPI % Y/Y         Y/Y  RPI % Y/Y  Input % Y/Y   Output % Y/Y

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

MNI

Median         0.5        2.4         1.8        3.3          9.2            3.0

Prior          0.0        2.5         1.9        3.2         10.9            3.1

     MNI Median Surprises Point To Upward Pressure: 

     Since 2008, analysts have under-estimated y/y CPI four times,

over-estimated it just the once and correctly estimated it five times. The

result is an average under-estimate of 0.045pp. Were there an under-estimate

Wednesday, the y/y rate could be higher than the 2.4% y/y anticipated by

analysts.

     Yield Upward Pressure Despite Downward Trend: 

     Anecdotal evidence such as the BRC/Neilsen report noted a rise in food

price inflation to 1.9% y/y from 1.6% in July. The main reason cited was the

warm weather limiting agricultural output. Consequently, there may have been an

uptick in seasonal food prices which appears to be against the downward trend in

the y/y CPI rate seen since November 2017.

     Higher Utility Prices Likely To Exert Upward Pressure: 

     Utility companies started to hike prices in July and have appeared to do so

in August also. With hikes in prices expected in September as well, this is

likely to continue to provide an upward boost to Y/Y CPI.

     Energy To Remain Elevated, But At Lower Levels Than July: 

     The recent rise in energy prices appears to have moderated a touch in

August. It still remains at a fairly high level, although MNI calculations point

to motor prices providing downside pressure to the headline rate of 0.02pp.

     Core and Headline Wedge; Put Into Context Less Of A Concern: 

     In recent MNI analysis, the CPI-Core CPI wedge stood at 0.6pp, the largest

divergence in just under five years. Whilst it is true this signals underlying

inflationary pressures are subdued, taking the series back a bit further shows

the divergence may not be as prolific as mentioned previously. The absolute

average pp divergence since January 1997 is 0.576pp. In other words, the recent

five-year high in the wedge is at the 21 -year average.

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

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