MNI 5 THINGS: UK Headline CPI Seen Deviating From April Core

     LONDON (MNI) - Wednesday's April UK Inflation data will be the first since

the Bank of England published its latest set of economic projections, which saw

the MPC bring forward its inflation forecast path after conceding the sterling

pass-through effect had been more intense and concentrate than initially

expected.

              Apr    Apr    Apr       Apr    Apr        Apr         Apr

              CPI    CPI   CPIH  Core CPI    RPI  PPI Input  PPI Output

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

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

MNI Median   +0.5   +2.5   +2.3      +2.2   +3.4       +5.8        +0.3

Prior        +0.1   +2.5   +2.3      +2.3   +3.3       +4.2        +0.2

     Ahead of the release, we flag 5 themes we feel warrant attention.

     --MNI Median Tends to Capture April CPI Better: 

     In recent years, April has been a volatile month for analyst misses, often

mired by the timing of Easter. Since 2008, the Bloomberg market median for April

CPI has implied a tendency to underestimate CPI by 0.05 percentage points. Using

the MNI median, the tendency is to overestimate but by a smaller 0.02 percentage

point margin. It is worth noting however that MNI median estimates have

correctly called April CPI four out of the last ten times while Bloomberg's

consensus has failed to correctly predict CPI on any occasion during this

period.

     --Headline and Core CPI Diverging: 

     Analyst estimates for April point to a growing divergence between headline

and core inflation. Headline CPI will be subject to upward bias from non-core

components -- soft drinks and fuel - which are typically stripped out of the

core measure. The earlier timing of Easter this year (Easter Sunday fell on

April 1 vs April 16 last year) could also weigh on core CPI in April as was the

case in the euro area, where Core HICP dropped 0.3pp to 0.7%. Still, this effect

is generally only temporary and would wash out by the time of the May inflation

print.

     --Sugar tax expected to push up non-alcoholic beverages inflation: 

     Despite many brands responding to the sugar tax, in force from April 6, by

ex-ante lowering the sugar content of their drink, there is still likely to be

some upward CPI influence emanating from this channel. The effect, however, is

likely to be muted, estimated at 0.1pp over the next year by the BoE, and

further highlighted by the modest stg13 million windfall the levy generated in

April.

     --Crude Oil Skyrockets to offset Sterling Strength: 

     The Sterling Effective Exchange Rate rose to 80.3 in April, up from 79.2 in

March. Whilst in the past this has contributed to the continued easing in input

PPI, April saw a sharp increase in crude oil prices in sterling terms, up 6.7%

on the month which should offset the former. Therefore, it shouldn't be a

surprise that analysts have pencilled in a rise in April input PPI to 5.8% y/y

from 4.2% y/y in March.

     --Pump price increase likely to drive upward effect: 

     While April saw a marked increase in crude oil prices, fuel prices have

been edging higher for a while. Pump prices rose by 1.3% during the month in

April, which compared with a -1.5% m/m base last April, should ensure the

category provides upward pressure on the month. Analysts estimate the

contribution to the month's CPI at 0.1pp, up from zero in March.

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

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