UK: Inflation decelerates to 2.2% in September

EcoFlash

Inflation decelerates further from 2.5% in August to 2.2% in September, the lowest rate since November 2009. It has thus stood below 3%, the upper bracket of the Bank of England’s inflation target, since last May. Nonetheless inflation is likely to pick up next month in line with rising gas and energy prices as well as university fees.

Consumer prices increased in September, up by 0.3% over the month. By far the largest upward pressure came from clothing and footwear prices, which rose by 4.7%, contributing 0.3 pp to the CPI monthly change.

CPI inflation came back from 2.5% in August to 2.2% in September, the lowest rate since November 2009. It has thus stood below the upper bracket of the Bank of England’s inflation target, since last May. According to the ONS, the largest downward pressures to the change in CPI inflation came from housing & household services (mostly electricity and domestic gas bills).

Core inflation inched up from 2.1% in August, its lowest level
since November 2009, to 2.2% in September.

Inflation has fallen rapidly from last year peak and more rapidly than expected by the Bank of England. Last August, the BoE forecast that it should fall further below its target in the fourth quarter of 2013, to about 1.9%. Next month, it will publish its new Inflation Report with actualised short term growth and inflation forecasts. Policy makers will have a difficult time when they meet on November 7 & 8. Some of them argue in favour of expanding the stimulus program again (from the current GBP375Bn ceiling), while others raise concern about the inflation outlook. Indeed rising gas and energy prices as well as university fees may slow the pace of cooling prices in the coming months. Moreover, inflation is likely to pick up again in October.

Published On Tue, Oct 16 2012, 10:05 GMT Previous entries

Caroline Newhouse

Follow Follow my activity on FXstreet.com BNP Paribas website

Expert in United Kingdom and Nordic Countries.

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