UK July Consumer Prices Decline 0.1%, Inflation Rate Unchanged At 2

UK Money

Real earnings are likely to continue falling for some time as inflation exceeds pay growth.

The producer prices data was slightly higher than expected with a 3.2% increase from 3.1% previously which suggests only limited short-term pressures from wholesale prices.

United Kingdom core inflation remained at 2.6 percent in July, unchanged from the previous month, although the earlier forecasts suggested the prices index would inch up to 2.7 percent due to robust consumer spending that month.

Hargreaves Lansdown senior economist Ben Brettell says: "Input prices are a leading indicator for consumer price inflation as higher input prices are often ultimately passed on to the consumer, and therefore a lower number here could bode well for softer consumer prices down the line". This was also faster than the expected 0.1%.

"Inflation was limited in July by lower motor fuel prices". Although oil prices remain volatile, commodity prices have generally shown signs of recovering over the past month.

In this webinar we will cover July's United Kingdom inflation readings and whether a weak Sterling continues to be the root cause of ongoing price increases.

This was 0.1 percentage point higher than the first-quarter figure, but still less than half the pace of growth seen in the final three months of 2016.

Producers' raw material costs fell 6.5 per cent in July down from a 10 per cent rise in June - the largest month-to-month slowdown in nearly five years.

Wells anticipates that consumers may have to live with price rises beyond 2017.

'We expect the committee as a whole to continue looking through inflation spikes in favour of slower growth.

The currency has whipsawed during recent months as traders responded to the idea that the June election may now mean the nation avoids a so-called hard Brexit, which is an encompassing exit from the European Union and its institutions, as well as fluid changes in interest rate expectations. The latest data shows that total weekly average earnings growth was 1.8% in the three months to May, while regular earnings growth was 2.0%.

"Thus the squeeze on consumers remains appreciable, with obvious negative implications for personal expenditure. It now looks quite possible inflation has peaked, and will fall back further incoming months".

United Kingdom inflation data - due out on Tuesday - and wage numbers on Wednesday will also determine whether the Bank of England opts to lift interest rates off the floor or wait for better clarity on Brexit.

"We have pencilled in one interest rate hike to 0.5% late on in 2018, but this is far from certain". We certainly would not be surprised if interest rates remained at 0.25% going into 2019.

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