UK Analysis: July CPI Steady As Input PPI Falls Sharply>

-UK July CPI +2.6% y/y vs +2.6% in June

-UK July Input PPI +6.5% y/y vs +10.0% in June 

-UK July Imported Materials Prices +6.0% vs +10.2% in June

-UK July CPIH +2.6% y/y vs +2.6% in June

-UK June House Price Index +4.9% y/y, down from +5.0% y/y in June

By Laurie Laird and Jamie Satchithanantham

     London (MNI) - Consumer price inflation steadied in June, but input 

inflation decelerated sharply from the highs recorded at the start of 

the year, as sterling continues to recover from last year's plunge. 

     The consumer price index increased by an annual rate of 2.6% last 

month, matching the MNI median forecast of 2.6% and the 2.6% rise in 

June. 

     The result was also in line Bank of England staff forecast of a 

2.6% annual rise in July, as reported in the August Quarterly Inflation 

Report. That takes inflation above the Bank's 2.0% target for the sixth 

straight month, but the moderation from the 2.9% rate touched in May may 

dampen discussion of a near-term rate hike. 

     Consumer prices fell by 0.1% between June and July, after 

registering no change between May and June, in line with the MNI median 

of a 0.1% monthly decline. 

     Ebbing transport price inflation kept CPI in check, with transport 

costs rising by 1.0% between June and July this year, below the 1.6% 

monthly rise in 2016. That subtracted 0.09 percentage points from the 

-0.01pp change in CPI. 

     But partially countering that was a rise in food and non-alcoholic 

beverage prices, which increased by an annual rate of 2.6%, the biggest 

jump since November of 2013, adding 0.03 percentage points to the change 

in CPI. That's the sixth straight increase in food prices after 31 

consecutive months of decline. 

     CPIH regained its status as a national statistic with the release 

of the July data, steadying at an annual rate of 2.6%, unchanged from 

June. CPIH had been downgraded as a national statistic due to 

inconsistencies in the use of rent payments as a proxy for 

owner-occupied housing costs. 

     Intermediate price inflation fell sharply, courtesy of a recovery 

in the value of sterling and a moderation in crude oil prices when 

compared to the same period last year.   

     Sterling was down by an annual rate of 3.0% in trade-weighted terms 

in July, recovering from an 18.4% loss back in October. 

     Producer input prices were unchanged between June and July, for an 

annual gain of 6.5%, below the MNI median of 6.8%, down from 10.0% in 

June. That's the biggest decline in input PPI since April of 2012, 

attributed to a strong crude oil base effect, and takes the measure well 

below the post-referendum peak of 19.9% recorded in January.  

     Imported material prices, which comprise some two thirds of inputs 

to the manufacturing sector, increased by an annual rate of 6.0% last 

month, the slowest increase since July of last year, and well below the 

post-referendum high of 20.2% in January.  

     Output PPI also moderated, rising by 0.1% in July, for a 3.2% 

annual gain, matching the MNI median forecast. 

     Stripping out food and energy, annual core consumer inflation 

steadied at 2.4%, below the MNI median forecast of a 2.5% rise, 

unchanged from the 2.4% pace recorded in June. 

     But retail price inflation increased, with RPI rising by an annual 

rate of 3.6% in July, up from a 3.5% pace in June, exceeding the MNI 

median of a 3.5% increase. 

     On this, James Tucker, Head of CPI Inflation at the ONS, said that 

"we know there will be focus on RPI this month, but the National 

Statistician has been clear it is not a good measure, and we do not 

recommend its use".   

     Stripping out mortgage interest payments, RPI-X rose by an annual 

rate of 3.9% in July, after increasing by an annual rate of 3.8% in 

June. 

     Meanwhile, UK house price inflation moderated in June, with the 

official House Price Index rising by an annual rate of 4.9%, down from 

the revised 5.0% annual pace recorded in May, but a gain on the 

almost-four-year low of 3.9% recorded in March. 

-London bureau: 44 (0) 203 865 3812; email: ukeditorial@marketnews.com

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