UK CPI – will rapid price growth finally abate?

[MongiIG]

While underlying inflation remains a concern, headline consumer price inflation is expected to be brought down by softer petrol prices and lower energy bills, contributing to an overall decrease in inflation.

Source: Bloomberg

 

Inflation Price Interest rate Consumer price index Interest Interest rates

 

 Chris Beauchamp | Chief Market Analyst, London | Publication date: Monday 17 July 2023 

UK inflation expected to slow

The latest figures from the Office for National Statistics (ONS) are expected to show that UK inflation is set to drop to its lowest level in over a year. In June, the rate of price growth is predicted to fall to 8.2%, down from 8.7% in May. This would be a reversal from previous expectations, as analysts had anticipated a decrease in the cost of living. However, it is worth noting that this figure is still higher than the Bank of England's (BoE) own forecast of 7.9% made in May.

Despite the overall drop in inflation, there are indications that underlying price pressures remain persistent. Core inflation, which excludes volatile food and energy prices and is considered a more accurate indicator of price dynamics, is forecasted to remain steady at 7.1% in June. Services inflation, an area closely watched by the central bank for informing its interest rate decisions, is also expected to remain high at around 7%.

More rate hikes needed

The sustained high levels of underlying inflation are likely to raise concerns among members of the BoE's monetary policy committee. These levels suggest that price increases are being driven by local factors, which could put pressure on the central bank to continue raising interest rates. Analysts predict that the Bank may increase borrowing costs from the current level of 5% to a peak of approximately 6.25%.

It is worth noting that while underlying inflation remains a concern, headline consumer price inflation is expected to be brought down by softer petrol prices and lower energy bills. These factors will contribute to a decrease in overall inflation.

In other news, the ONS is set to release figures on Friday that are likely to show a slight increase of 0.1% in retail sales for the month of June, attributed to the warmer weather. However, over the past year, retail sales have dropped by 1.5%.

Overall, these figures suggest a complex economic landscape for the UK, with a drop in overall inflation, but persistent underlying price pressures that may necessitate further interest rate hikes by the BoE.

[MongiIG]

UK (GBP) Breaking News: UK CPI Miss Troubles Pound

UK inflation rose 7.9% in June compared to a year earlier, below the expected 8.2%, while the monthly figure rose just 0.1% compared to the forecast 0.4%. This has put some pressure on the pound, but one inflation figure may not be enough to allow the Bank of England to pause its hiking campaign.

 

 

[THT]

Follow the pattern

The sequence is 4 year cycles of Pink and Blue = Expectation of next PINK is a HIGH, which is likely to mean rising soft comm prices until 2024

THEN one hell of a crash into the BLUE LOW cycle point 2 years later

[MongiIG]

Equities up, GBP down on slower than expected UK inflation

The Bank of England (BoE) is now expected to only raise rates a half a percentage point rather than the full 100 basis points as UK inflation comes in weaker than anticipated.

 Jeremy Naylor | Analyst, London | Publication date: Wednesday 19 July 2023 

Headline consumer price inflation has fallen to a 16-month low year-on-year - a 7.9% rise in the year to June, down from 8.7% in May. It's a larger fall than expected, with City economists having predicted a fall to 8.2%, which will cheer policymakers at the BoE.

(Video Transcript)

Consumer price index

Now key UK inflation data has fallen to a 16-month low. Year on year. Let's take a look at the numbers, as they were just recently broken. The consumer Price index rose by 7.9% in June. Yet the consensus had been for 8.2%. This is down from 8.7%.

Now the fall is larger than expected, said Citi economists, having predicted 4 to 8.2%, which will cheer policymakers at the Bank of England. We've got to be mindful of what's happening in the context of all this, and we must remember that it still remains at painfully high levels. And this faster than expected fall is against a steep rise last year. So, we mustn't lose sight of the fact that prices are still climbing on top of last year's gains, making everybody poorer still.

Producer price index

Producer prices are on the rise. Point one: We were expecting a rise to point five. The retail price is also weaker than expected. So, the way to trade this is with a weaker sterling and a stronger equity market. And look at what we've got here.

GBP/USD

The early trade These are 10-minute candles for GBP/USD. And you can see clearly here the market reaction, and we're punching still lower and further down for sterling against us. Dollar one: 2933 I want to show you this in terms of the daily candles because it gives you a better idea. And for those day traders, you can see no buyers at this level. If you are short on this and if you missed the trade on the way down, you'll stop below the 130 level.

Your next price target is here at 2848, which are the highs we saw back on the 16th of June. You get a punch through there. Then on the way down to next Monday's support, which are the highs we saw back on the 10th of May, which were the 2679 level potentially more downside to go. You put your foot-tool on that, and I think you'll find out that, in fact, what we've got here are those support levels to watch out for.

Support levels

Here we are, support coming through for you on Sterling at 128 ten. Not too far away from this line at one 2848 | was talking about, which is not a support to watch out for. It's not just against the US dollar. We've got Sterling on the way down. Look at this as well. This is sterling against the euro. Same sort of price action. We got ten-minute candles showing us a lot lower on the basis that we've got this number coming through on UK inflation weaker than expected.

The Bank of England

The big question is, now, just how much more heavy lifting does the Bank of England need to do to quell inflation further? We must not lose sight of the fact that we are still above the 2% inflation target, which means we are still painfully inflating. Wages on keeping up. So, any price reductions are going to be good news. Sterling is now at levels that we've seen against the euro since the 30th of May.