UK Inflation Rate

paparossco

QUOTE=worldtraveller;73113964]Inflation, as measured by the Office for National Statistics' Consumer Prices Index (CPI), was 2.9% in August, 2017, up from 2.6% in July, 2017.
ONS[/QUOTE]

Don't worry it will be back to 1% next month. Why? Because the Public Sector Pension Schemes uplifts are calculated on the basis of CPI in September each year :rotfl: Well the NHS is anyway.

kabayiri

There will be food inflation over this winter and next year. Obviously, some of this is down to the weaker pound, but there are ingredient increases in things like Cocoa and Canadian wheat.

There could be some product re-engineering on the confectionery front, something we have seen before. The brands are conscious about own brand inroads into the marketplace, so they'd have to manage this carefully.

You have to balance these increased costs against cheap mortgage money though. It's been a good run since 2010 for borrowers.

Filo25

BoE hinting at withdrawing stimulus in the coming months has got everyone starting to ponder an imminent interest rate rise.

I still don't really see it myself, inflation is obviously above target due to Sterling's devaluation, but nominal wage growth is not massively strong, real wage growth remains negative and growth numbers for the last couple of quarters haven't been massively impressive either.

With the uncertainty of Brexit to come I don't see the BoE tightening unless their hand is forced, of course talking tough on rates does have the impact of strengthening Sterling somewhat which they may view as a relatively painless way of taking some of the inflationary pressure out of the economy.

michaels

The BoE used to think that unemployment below 7% might start to cause wage inflation pressures. 20m unemployed Europeans resulted in that belief being wrong.

Now however we have seen a big slow down in net European migration as newcomers dwindle and some already here go home so the BoE is back to predicting wage inflation pressure as a result of low unemployment.

This time they may actually be right although there is little data beyond anecdote (for example the end of the public sector wage freeze to address recruitment and retention issues) to support that view yet.

worldtraveller

Inflation, as measured by the Office for National Statistics' Consumer Prices Index (CPI), was 3.0% in September 2017, up from 2.9% in August 2017.

Main points

• The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 2.8% in September 2017, up from 2.7% in August 2017; it was last higher in March 2012.
• The main contributors to the increase in the rate were rising prices for food and recreational goods, along with transport costs, which fell by less than they did a year ago.
• These upward effects were partially offset by downward contributions from a range of goods and services, in particular clothing prices, which rose by less than they did a year ago.
• The Consumer Prices Index (CPI) 12-month rate was 3.0% in September 2017, up from 2.9% in August 2017; it was last higher in March 2012.

ONS

Filo25

Hard to see how rates don't go up 0.25% in November at this stage without the BoE looking like you really can't believe a word they say.

Although I don't share the feeling that we are going to see much further tightening following on from that increase in the near term

GreatApe

michaels wrote: »

The BoE used to think that unemployment below 7% might start to cause wage inflation pressures. 20m unemployed Europeans resulted in that belief being wrong.

Now however we have seen a big slow down in net European migration as newcomers dwindle and some already here go home so the BoE is back to predicting wage inflation pressure as a result of low unemployment.

This time they may actually be right although there is little data beyond anecdote (for example the end of the public sector wage freeze to address recruitment and retention issues) to support that view yet.

As the economy has gone more towards services there is less pressure to increase wages as adding additional services capacity costs less than adding additional manufacturing capacity

A manufacturer at capacity will put prices up to ration demand in a growing economy
A mortgage broker at capacity might just work another hour a day or employ some better software or just hire one additional person rather than put prices up

Perhaps that is a reason why inflation has been lower in most the advanced economies

Eric_the_half_a_bee

GreatApe wrote: »

A manufacturer at capacity will put prices up to ration demand in a growing economy

If capacity is very sticky (e.g. oil refineries, steel plants), perhaps. Usually it isn't.

michaels

Filo25 wrote: »

Hard to see how rates don't go up 0.25% in November at this stage without the BoE looking like you really can't believe a word they say.

Although I don't share the feeling that we are going to see much further tightening following on from that increase in the near term

Personally I find it hard to get excited about a change in the reported inflation rate of 0.1% which is no doubt within the margin of error of the figures. Similarly having been alive in the 70s, 80s and 90s it is pretty hard to get interested in a difference between 2% inflation and 3% inflation.

Given in the last 6 years inflation hit 5% and the BoE did not move rates from 0.5% it would seem that it is their calculation of the level of slack in the economy that would trigger any increase rather than the headline CPI number.

Personally I think they will hike in November because the loss of face form not doing so would be too great having virtually pre-announced an increase but unless we quickly see an EU deal then I can not see the economy doing anything that continuing to slow and thus would be very surprised to see further increases next year. (Except possibly to get to a level where there is scope for cuts in the event of a hard Brexit which hardly seems like sensible policy making 'Why are you raising rates?' 'So when higher rates choke the economy and cause a recession we have scope for monetary easing!')

GreatApe

michaels wrote: »

imho

The difference between 2.9% rpi and 2% rpi for a single year is negligible and likely to be swamped by different effective inflation rates for individuals.

In most people's expectations real wages increase by a couple of percent each year due to wage increases and seniority increases, probably not noticeable every year but definitely people expect to be better off after 5 years.

Since 2009 this has not happened. In the years where inflation has been well below historical norms and even negative this has not felt so bad with some sort of perceptions issue at play but themeffect is cumulative so the current real terms fall plus higher than recent inflation is noticeable.

Income increases are quite widely distributed, in summary private sector wages fell sharply in 2008-10 but have since seen increases so at least feel like they are going the right way even if overall they have not really increased any more than public sector wages that were flat and then capped at 1% with annual band increases also now severely curtailoed with people at the top of their bands meaning they seem particuarly tight with the current inflation uptick.

So inflation right now is not dreadful but is pyschologically a big problem especially for those who have had little recent wage growth.

Finally I do not think a one off change in the price level due to devaluation merits an interest rate response until it feeds into wagemincreases that then necesitate further price increases.

While incomes might not have increased a lot over the last 5-7 years other forms of wealth really have boomed

Someone I know transferred their final salary pot into a SIPP and got offered not far off £600,000 as a pension pot which is amazing for someone who was just a working class man. He is not in the best of health so its a massive advantage for him to take this lump sum rather receive closer to £22k annual pension. Not a lot of people like Osborne but the pension reforms really did help a lot of people.

Likewise stocks and bonds are at record highs and property in the South has done well over the last 5 years. So its not just about income its about total wealth which is at record highs.

Also inheritances and gifts are at record highs and growing as the savings rate is still positive