MNI DATA IMPACT: No Sign Of Brexit Uplift In UK Jan Inflation​

UK CPI accelerated by less than expected in January, with little sign that reports of border friction at the start of the year fed into higher consumer prices, according to data released on Wednesday by the Office for National Statistics.

Statisticians saw little sign that reports of border friction following the UK's withdraw from its transition trading arrangement with the European Union affecting pricing. Consumer price inflation rose to 0.7% from 0.6% in December, falling short of analysts' forecasts of an increase to 0.8%. Despite the lift, inflation remained below the bank of England's 2.0% target for the 18th-straight month.

Despite persistently-low inflation, the MPC expects inflation to rise "quite sharply toward the 2% target in the spring," courtesy of the expiration of value-added-tax breaks and the recovery of energy prices after an unprecedented decline in early 2020. Brent crude oil peaked at over $68 a barrel in the closing days of 2019, falling to under $55 by early February of last year.

Furniture and household equipment provided the biggest upward influence on CPI, accounting for 0.1 percentage point of the increase, with retailers able to shift stock without applying the historical heavy January discounting. Food and alcoholic beverages accounted for 0.08 percentage points of the rise in CPI, but much of the increase came from rising prices for premium potato crisps, a notoriously volatile product.

Clothing and footwear prices continue to exert a negative effect on consumer inflation, subtracting 0.17 percentage points from the change in CPI. Clothing prices declined by 4.9% between December and January, the biggest January fall since 2014, compared to a 3.3% decline a year earlier Core inflation steadied at 1.5%, unchanged from December.

The January data reflect annual re-weightings of the CPI basket, but the revisions did not exert any change on CPI when measured to one decimal place. The ONS did not update the CPI series to reflect Covid-related changes in spending patterns. That series will be published with the February data next month.

Some 69 items in the CPI basket were unavailable in January, up from 9 in December. Excluding those items, the CPI covered 87.7% of the basket when compared with the same month of 2020. Output inflation fell by 0.2%, the 11th-straight annual decline, but the smallest fall since March of 2020. Input price inflation rose by 1.3%, the largest rise since May of 2019, boosted by the price of metals.

Intermediate price data were collected on the first day of January, so did not reflect any Brexit-related trade friction, which could appear in later months' data, according to an ONS official.