U.K. headline inflation decelerates in September

U.K. annual CPI inflation decelerated slightly in September after rising in August. The headline inflation slowed to 2.4 percent from August’s 2.7 percent, matching the levels seen in the second quarter. The outturn came in below the consensus expectations of 2.6 percent. The core rate, which excludes energy, food, alcohol and tobacco, also dropped in the month, slowing to 1.9 percent from 2.1 percent. Accordingly, the pace of RPI inflation also decelerated in the month to 3.3 percent, with both this and the RPI index at 284.1, proving weaker than anticipated, noted Lloyds Bank in a research report.

The downside surprises to September inflation were widespread with several categories, especially for goods, providing solid downward influences to the month-on-month change in prices. Markedly, several areas that saw upward surprises to the August inflation outturn, added greatly to the downward move in September inflation, underlining the unpredictable nature of some of the recent price rises, especially in recreation and culture, clothing and footwear, and transport.

“Still, it is notable that a number of upward surprises came in areas that have a low import-intensity and therefore should be less affected by the downward impact on inflation resulting from the ongoing fading of sterling’s post-referendum decline”, stated Lloyds Bank.

The sharp decline of September signifies that CPI inflation over the third quarter averaged 2.5 percent, matching the Bank of England’s forecast, made in August’s Inflation Report.

In the near term, the continued feed through from increased utility prices is likely to keep inflation around its current level. In the meantime, the prospect of some upward impulses from increased food prices is likely, due to inclement weather earlier in 2018 throughout several parts of the globe.

“This suggests that even as the unwinding effect of the post-EU referendum currency depreciation continues to bear down on goods price inflation, overall inflation is still likely to remain above target for some time”, added Lloyds Bank.

At 11:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at -47.0025, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 114.177. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex