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UK DATA: Ofgem to publish updated quarterly consumer price cap on Friday

UK DATA
  • On Friday, Ofgem will release its update on the quarterly price cap for electricity and gas which impact the vast majority of consumers.
  • There is a big base effect working through utilities prices currently having large impacts on headline CPI. Indeed, as we noted in last week’s Inflation Insight, the increase in utilities prices in July added 0.45ppt to headline CPI relative to June (but overall still contribute around -0.9ppt to headline CPI).
  • Based on Cornwall Insight’s latest forecasts for the price cap to rise to £1714 we estimate that a further 0.63ppt would be added to headline CPI from October onwards.
  • This would be a slightly larger upward change in Oct vs Sep than the BOE’s MPR forecast (0.51ppt).
  • However, it would still see utilities prices overall still pulling CPI lower. Based on current market curves utilities will only start to contribute positively to headline CPI in Q2-25.
  • Does this matter for MPC policy? Yes and no. No because in the near-term the MPC is looking through the volatility from non-core components. But yes from the fact that headline inflation will impact indexed services and wages in the medium-term. So although the focus recently seems to have been squared on services CPI, we can’t ignore wider moves within headline inflation.
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