Static inflation puts August rate rise in doubt

Static inflation puts August rate rise in doubt

Andrew Cummings
July 19, 2018

While a hike is widely expected in financial markets, the June inflation rate is below the level predicted by the BOE in May.

While the upward effects were seen in energy-related categories of the United Kingdom inflation basket - with auto-fuel prices rising 2.2 percent last month and three big energy firms increasing utility prices - these were more than cancelled out by downward effects in several "core" goods categories, noted Lloyds Bank in a research report.

Despite clothing sales and cheaper computer games, consumers also battled with falling wage growth.

"We still expect the Bank of England (BoE) to hike interest rates next month, but today's report does little to suggest that there should be any change to the BoE's rhetoric, added Lloyds Bank".

He noted that 10 of the 12 largest energy suppliers - including British Gas, Scottish Power, EDF Energy - have announced price rises which will kick in over the summer.

Sales unexpectedly fell on a month previous by 0.5%, another sign that a BoE rate hike next month may not be a done deal.

That was largely down to the rising price of fuel, with petrol prices hitting their highest in four years in the month.

Economists had expected rising petrol prices, following higher oil prices, to push up the headline measure.

To be sure, the price gains have to be seen from the perspective of an unfavourable base effect - WPI inflation in June 2017 was just 0.9%. Factories, however, have chosen to absorb much of the pressure rather than pass it on to consumers with output prices rising 3.1 percent.

Food prices eased by 0.6%, due primarily to a drop in fruit prices and a category that includes syrup, sugar, jam, chocolate and confectionery, for which prices fell 1.1% and 1.3% respectively.

Tom Stevenson, investment director at Fidelity International, said: 'June's unchanged inflation rate is a huge surprise. While these came through, they were offset by falling prices for clothes and games.

Average UK earnings increasing by 2.7% in the three months up to May, meaning that wages are still growing above inflation.

"Now it looks odds-on that the MPC will hold fire yet again". That's particularly the case after yesterday's wage growth data emerged weaker than expected.

The Retail Prices Index, a separate measure of inflation, was 3.4 per cent last month, up from 3.3 per cent in May.

Prices of pulses have continued to slump for over a year now, with the rate of decline relatively slowing at (-) 20.23 percent in June, as compared with a de-growth of (-) 21.13 percent in May.

Other reports by iNewsToday