MNI DATA IMPACT: UK CPI Dips Below 1% As BOE Bailey Faces TSC

--UK headline inflation falls to 0.8% y/y

By Laurie Laird

     LONDON (MNI) - UK inflation receded dramatically in April, falling below an

annual rate of 1% and hitting a level necessitating a letter from Bank of

England Governor Andrew Bailey to the Chancellor of the Exchequer to explain the

Bank's failure to meet its mandate.

     The following are the main points from the April report on consumer and

producer prices released on Wednesday by the Office for National Statistics.

     - CPI fell to an annual rate of 0.8%, the lowest level since August 2016.

It was the ninth month below the Bank of England's 2.0% forecast. That's the

biggest monthly decline in CPI since December 2008.

     - When inflation has deviated from target in the past, letters to the

Treasury were released at the same time as the inflation report, as the Bank

received the data ahead of general release and can be expected later today.

     - Excluding items in the CPI basket that are unavailable or scarce due to

the economic shutdown, CPI fell to an annual rate of 0.6%, with those items

exerting a downward influence of 0.23 percentage points on the change in CPI.

The price of more than one-fifth of the items in the basket (by weight) could

not be collected, leaving statisticians to impute the value of those items in

calculating headline CPI.

     - Energy prices exerted a dramatic drag on CPI, with motoring fuels

contributing -0.31 percentage points to the change in CPI. Electricity and gas

prices subtracted 0.35 percentage points from the change in CPI as Ofgem

electricity price caps took effect in April.

     - However, recreation and culture prices offset some of the downward

pressure, adding 0.19 percentage points to the change in CPI, with prices of

games consoles jumping by 7.7% in April, compared with a 2.2% fall a year

earlier. Statisticians also reported higher prices for dolls, teddy bears and

riding toys, due to increased to demand.

     - Core CPI fell to an annual rate of 1.4% in April in line with

expectations, from 1.6% in March.

     - RPI declined to 1.5%, falling slightly short of forecasts, to the lowest

level since May of 2016. RPIX declined to 1.6%, the lowest level since March of

2016.

     - Plunging energy prices exerted downward pressure on intermediate

inflation, with crude oil falling by 34.1% between March and April and petrol

products declining by 10.2%, both record declines.

     - Input PPI slumped by a record-high 5.1% in April, leaving input prices

down 9.8% on an annual basis, the biggest fall since December 2015. Output PPI

declined by an annual rate of 0.7%, the biggest fall since February 2016.

     - The price of imported materials and fuels plunged by 6.2% between March

and April, the highest fall on record.

     - Bank of England staff seemed to expect a less rapid fall in inflation.

Members of the Bank's Monetary Policy Committee expected a fall in headline CPI

below 1% "over the next few months" according to minutes of the May rate setting

meeting.

     - A cast of Bank of England characters, including Governor Andrew Bailey,

will testify before the Treasury Select Committee later on Wednesday. The sharp

fall in inflation may stir more questions over the Bank's thinking about the

efficacy of negative interest rates in the UK.

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

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