Economy

CPI inflation jumps to five-month high in Aug'17

CPI inflation jumps to five-month high in Aug'17”

Economists had forecast 2.8% inflation. It was, however, sharply lower compared to 4.5% growth seen in July past year.

The inflation for clothing and footwear increased to 4.58%, while the CPI inflation of fuel and light also rose to 4.94% in August 2017. Inflation is now well above the bank's target of 2%, worsening the dilemma for rate-setters who are anxious about raising rates amid the economic uncertainty. The area saw prices rise by 4.6 per cent in the 12 months to the end of August, compared with 3.2 per cent in July.

Motor fuels were also pushing the overall cost of living higher, with fuels and lubricants rising 1.6 per cent month-on-month in August following a 1.3 per cent fall a year ago.

Looking ahead, all focus will of course be on tomorrow's BoE monetary policy meeting as markets look to the bank for any signs that it may raise interest rates in the near future.

Petrol also pushed the overall cost of living higher, increasing 1.8p a litre to 115.7p during the month, while diesel gained 2p to 117.6p. It will be interesting to see whether any other members may do likewise given today's reading.

"With mixed signals on the current strength of the economy and the majority of the Committee appearing to be comfortable with a temporary, exchange-rate driven pick-up in headline inflation, we don't think that the MPC will be panicked into raising interest rates imminently", Hollingsworth said.

Against the euro, the pound rose 0.6% to 1.10 euros.

"This latest rise in inflation - to just under 3% - is not a great surprise". Instead, it hit its joint highest level since the Brexit vote last summer. Clothing and footwear prices are up by 4.6%, the biggest increase for at least a decade.

Output prices climbed 3.4 percent yearly, faster than the 3.2 percent increase in July.

"The staggered impact on the housing index of the CPI, of the revision in HRA (house rent allowance) of central government employees, is likely to continue to push up housing inflation further over the coming year", Ms. Nayar wrote.

In contrast, the output of intermediate goods declined by (-) 1.8 per cent, consumer durables by (-) 1.3 per cent and capital goods by (-) 1 per cent. The trend growth in Apr-Jul was 1.8 per cent this year, DBS added.

Wage growth that is lagging behind inflation is also a serious concern for policymakers as this could dampen household spending, going forward.

Sterling fell off a year-high against the dollar this morning after official wage data suggested consumers face a long, expensive winter. The BoE has shown patience with above target CPI prints, however some reduction in the dovish bias and a move towards a more neutral or even a few hawkish comments is now expected by the market.



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