UK inflation remains at 0.6 per cent in August, ONS reveals
UK inflation did not rise as much as hoped in August, according to official figures released on Tuesday, indicating that the recent fall in the pound has not begun to boost inflation yet.
The consumer price index (CPI) remained flat with a 0.3% month-on-month increase from the negative 0.1% figure in the previous month but short of the 0.4% expected by economists.
Following two rises in previous months, data from the Office for National Statistics revealed that annual CPI kept rising at 0.6% for the second month in August, while the market had been expecting an acceleration to 0.7% and the Bank of England had forecast a rise of 0.8%.
Rising food prices and air fares were the main drivers of inflation, the ONS said, plus a smaller fall in the petrol prices than a year ago, with these upward pressures offset by hotels, wine and clothing.
ONS' head of inflation Mike Prestwood noted that raw material costs have risen for the second month running, "partly due to the falling value of the pound, though there is little sign of this feeding through to consumer prices yet”.
Core CPI, which excludes more volatile prices like fuel and food, also remained steady at its year-on-year rise of 1.3%, again short of an forecast increase to 1.4%.
Producer input price inflation rose to 7.6% in August from 4.3% in July, while producer output price inflation rose to 0.8% from 0.3% a month ago, in signs that increased prices will be moved onto consumers soon.
“While inflation has remained unchanged this month, the impact of currency changes works with a lag so further rises in CPI should be expected," said Tom Stevenson, investment director for personal investing at Fidelity International.
"With fresh concerns being raised about growth prospects in the UK, the spectre of stagflation cannot be dismissed – something the Bank of England will be desperate to avoid. So far the impact of Brexit has been muted but with the Bank almost out of ammunition, expect Mark Carney to be pushing for more support from the government in November’s Autumn Stateme."
Capital Economics' Scott Bowman agreed that CPI inflation should resume its upward journey in coming months.
"The effects of sterling’s recent fall on import prices will gradually feed through to consumer prices, while the contribution from the previous falls in commodity prices will continue to wane."
Pointing to the increases in producer input and output price inflation as signs that these factors are starting to make their way through the inflation pipeline, Bowman forecasts that CPI inflation should break through the BoE's 2% target in mid-2017 and near 3% by the end of next year.
"However, the MPC has previously said it is willing to look though a temporary period of above-target inflation, so this shouldn’t stop it from loosening policy further," he added.