MNI DATA IMPACT: UK CPI Exceeds Forecast On Clothes, Petrol

UK consumer prices rose more than expected in July, fueled by higher petrol and clothing prices, while Covid-adjusted measures of CPI suggest a slightly higher rate of of underlying inflation than previously estimated, data released Wednesday by the Office for National Statistics showed.

CPI jumped to an annual rate of 1.0% in July, far outpacing expectations of a 0.6% rise, in line with the June outturn. Excluding food and energy, core inflation rose to 1.8%, the fastest pace in a year.

Clothing and footwear added 0.16 percentage points to the change in CPI, with fewer items discounted than in the same month of 2019. Petrol prices rose by 4.9 pence a litre between June and July, the biggest increase since January of 2011, accounting for 0.14 percentage points to rise in CPI. The cost of personal protective equipment in services such as dentistry and beauty treatments added 0.06 percentage points to the monthly rise in inflation.

Despite the unexpected gain, inflation remained below the Bank of England's 2.0% target for the 12th straight month, the longest stretch below 2% since the 37 months beginning in January 2014. The rise in inflation may come as a surprise to the Bank's Monetary Policy Committee, which forecast a fall in inflation to 0.25% "over the latter part of the year" in the August Monetary Policy Report.

UNAVAILABLE ITEMS

Excluding items still unavailable to consumers, CPI rose by 1.0% (in line with headline CPI), from 0.5% in June. Only 12 items in the CPI basket were unavailable in July, down from 68 in June and 98 in April.

The ONS produced new data which re-weight the CPI basket to reflect Covid-related spending patterns. According to this series, consumer prices rose by an annual rate of 0.7% in June (above the unadjusted pace of 0.6%), by 0.6% in May (compared to the headline rate of 0.5%) and by 0.7% in April (vs the headline rate of 0.8%). The National Institute of Economic and Social Research had estimated that headline series could be under-estimating inflation by 0.4 percentage points. The ONS will publish a re-weighted estimate of July CPI next month.

Intermediate price pressures remain muted, despite upward pressure from crude oil and petroleum products in the month of July. Input PPI fell by an annual rate of 5.7%, a less-severe decline than the 6.7% recorded in June. Output prices slipped by an annual rate of 0.9%, matching the June decline. Core output PPI moderated to an annual rate of 0.1%, the slowest pace since January of 2016, after rising 0.5% in June.