UK CPI inflation to edge up in August to 0.7% - RBS

Research Team at RBS, is forecasting the UK CPI inflation to edge up in August, to 0.7% (y/y) from 0.6% which would be the ‘highest’ outturn since November 2014 but the rise is principally reflection of energy price base effects.

Key Quotes

“Tentative signs of price pressures as a result of sterling’s post-referendum slide are surfacing but the underlying picture remains subdued – Core CPI inflation is forecast to remain at 1.3% while the labour market data are expected to show a further fall in wage inflation.

In terms of the upside influences from non-core components: petrol prices are forecast to fall 1.3% m/m, but base effects will push up the y/y rate to -2.5% from -4.3% (adding 0.06pp to CPI inflation). Utility prices are forecast to be largely unchanged in the month, leaving the y/y rate little altered at -3.0% (from -3.3%). Overall FBTE inflation is forecast to edge up slightly to -1.7% from -2.0%, adding 0.06pp to CPI inflation.

For the official inflation data in August we do not expect any marked change in most of the high discretionary spending categories – consumer demand remains constrained by weak income growth and it is still too early to expect any significant pass-through from sterling’s depreciation – this influence will become more apparent in the months ahead but probably not until Q4.

RPI inflation is forecast to fall to 1.7% August, principally reflecting the impact of the 25bp Bank Rate cut on mortgage interest payments. RPIX inflation is forecast to remain stable at 1.9% in August.”