-  Annual rate holds at last month’s levels
-    Accommodations offset gains in airfare costs
-    Pipeline inflation falls on lower fuel prices 
-    Data unlikely to shift MPC expectations 

By Harry Daniels    
LiveSquawk News    
@HarryDaniels71     
  
  
18 September 2024 | 10:00 GMT 
 
 
LONDON – The Office for National Statistics (ONS) has reported little movement in the UK inflation rate in August, with commentators noting the data seems to rule out a move from the Bank of England on Thursday. 

Headline annual CPI rose 2.2% y/y in August, which was in-line with forecasts and July. On the month, prices grew 0.3% after falling 0.2% previously. Core CPI, a key measure of underlying strength, increased to 3.6% y/y, matching estimates and moving three-tenths above last month’s mark.  
 
Commenting on the data, ONS chief economist Grant Fitzner said, “The main movements came from air fares, in particular to European destinations, which showed a large monthly rise, following a fall this time last year.  

“This was offset by lower prices at the pump as well as falling costs at restaurants and hotels. Also, the prices of shop-bought alcohol fell slightly this month but rose at the same time last year.”

Within the core read, annual CPI services grew 5.6% from 5.2% last whilst the goods component fell 0.9% versus a 0.6% drop in July. 

Following Tuesday’s report, analysts noted that having hit the Bank of England's 2.0% target in May/June, UK inflation has struggled to return to those levels. Pierre Roke from Validus Risk Management said, “Services inflation remains a key concern. Though this is still under the BoE’s 5.8% projection, it underscores ongoing price pressures in the services sector.”

Despite the benign picture for August, the underlying outlook for price growth continued to bear the scars of stubborn resistance. However, ING economist James Smith noted that the BoE’s survey of businesses was showing consistent declines in both expected and realised wage/price growth. “Coupled with the ongoing cooldown in the jobs market, we think the broad consensus at the BoE will shift in favour of faster rate cuts through the winter.”

Annual PPI output prices missed expectations on both the monthly and yearly measures. In the month to August, prices fell 0.3% versus flat values for the forecast and prior reading. Annually, costs were up a subdued 0.2% compared to a 0.5% estimate and 0.8% in July.

PPI input prices eased 0.5% m/m, missing the 0.3% decrease predicted and cooler than the 0.3% downwardly revised fall in the previous month. Factory gate prices declined 1.2% in August compared to a year ago, down from a revised gain of 0.2% previously.

“Following two months of growth, raw material prices fell, driven by lower crude oil prices, while the increase in the cost of goods leaving factories slowed again,” Fitzner said.

To be perfectly blunt, Wednesday’s inflation report is unlikely to change the views of investors and policymakers regarding Thursday’s interest rate decision. The bank’s Monetary Policy Committee is widely expected to leave rates unchanged at 5.00% following last month’s quarter point cut.

Nomura’s George Buckley posited that while these figures remain important to policymaking, there’s less of a “whites of the eyes” focus on inflation at present and more emphasis on the BoE forecasts themselves and the growth outlook. “An encouraging aspect to today's CPI figures is that service and core goods price growth look relatively normal in August relative to a ’typical’ August. Moreover, producer prices were also benign – core output prices rose by just 0.1% m/m in August, while headline fell 0.3%, due to energy and food price declines. Producer input prices fell too.”