UK Analysis: September CPI At 5-Yr High, Poses BOE Challenge>

-UK September CPI +3.0% y/y vs +2.9% in August

-UK September Input PPI +8.4% y/y vs +8.4% in August 

-UK September Imported Materials Prices +7.9% vs +7.9% in August

-UK September CPIH +2.8% y/y vs +2.7% in August

-UK August House Price Index +5.0% y/y vs +4.5% in July

By Laurie Laird and Jamie Satchithanantham

     London (MNI) - Consumer price inflation accelerated to its fastest 

pace in over five years in September, lifted by food prices and 

transport costs, presenting a challenge to the Bank of England when it 

considers interest rates next month. 

     The consumer price index increased by an annual rate of 3.0% last 

month, matching the MNI median forecast, extending the 2.9% rise in 

August, the joint-highest rate since April 2012 when CPI also rose by 

3.0%. 

     Consumer transport prices jumped by 4.2% over September of 2016, 

adding 0.14 percentage points to the change in annual CPI. However, the 

lift to total inflation was due to a statistical anomaly, according to a 

National Statistics official. Air fares actually dropped in September, 

in line with previous years, but the sector now comprises a smaller 

proportion of the consumer price index basket, leading to an upward 

impact in the calculation of the CPI. 

     Food and non-alcoholic beverage prices rose by an annual rate of 

3.0% in September, the biggest rise since October of 2013, adding 0.09 

percentage points to the change in CPI. The official was unable to say 

whether the decline in sterling over the past year contributed to the 

increase in food prices. That's the eighth straight month of rising food 

prices, measured on an annual basis, after 31 consecutive months of 

decline. 

     The result exceeded Bank of England staff forecast of a 2.8% annual 

rise in September, as reported in the August Quarterly Inflation Report. 

That takes inflation above the Bank's 2.0% target for the eighth 

straight month. 

     The persistence of above-target inflation could prompt some lively 

discussion at the meeting of the Bank's Monetary Policy Committee on 

November 2. 

     The MPC voted by five votes to two to keep rates on hold at its 

September gathering, but hinted of potential rate hikes in the pipeline. 

According to minutes of that meeting, MPC members agreed that, "some 

withdrawal of monetary stimulus is likely to be appropriate over the 

coming months." 

     Consumer prices rose by 0.3% between August and September, after 

rising by 0.6% between July and August, matching the MNI median forecast 

of a 0.3% monthly gain. 

     CPIH, which regained its status as a national statistic with the 

release of the July data, accelerated to an annual rate of 2.8% from a 

2.7% pace in August. CPIH had been downgraded as a national statistic, 

but the Bank of England continues to target CPI even with the 

recertification of CPIH. 

     Intermediate price inflation steadied, after easing over the summer 

months. 

     Producer input prices jumped by 0.4% between August and September, 

for an annual gain of 8.4%, just above the MNI median of 8.3%, matching 

the August gain, but well below the post-referendum peak of 19.9% in 

January.   

     Imported material prices, which comprise some two thirds of inputs 

to the manufacturing sector, increased by an annual rate of 7.9% last 

month, matching the August rise, but remaining below the post-referendum 

high of 20.2% touched in January.  

     Sterling was down by an annual rate of 1.9% in trade-weighted terms 

in September, recovering from an 18.4% loss back in October. The annual 

fall in sterling last month was the smallest since the UK voted to leave 

the European Union in June of 2016. 

     Output PPI eased slightly between August and September, for a 3.3% 

annual gain, matching the MNI median forecast. 

     Stripping out food and energy, annual core consumer inflation 

steadied at an annual rate of 2.7%, matching both the MNI median 

forecast and the 2.7% pace recorded in August. 

     Retail price inflation also steadied, with RPI rising by an annual 

rate of 3.9% in September, matching the 3.9% pace recorded in August and 

the MNI median forecast. 

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

rate of 4.1% in September, also unchanged from August. 

     Meanwhile, UK house price inflation also accelerated in August, 

with the official House Price Index rising by an annual rate of 5.0%, up 

from the downwardly-revised 4.5% annual pace recorded in July. London 

recorded the slowest growth in the country, with prices rising by just 

2.6%. 

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

[TOPICS: M$B$$$,MABDS$]