UK CPI running at 5.4% for the past two months
Much has been made this week about the fact that the CPI has fallen to its lowest level since November 2009. From the ONS report:
- The Consumer Prices Index (CPI) annual inflation stands at 2.2 per cent in September 2012, down from 2.5 per cent in August. This is the slowest rate of inflation since November 2009, when it was 1.9 per cent
- The majority of the downward pressure to the change in the CPI came from the housing & household services sector with September 2011’s utility bill rises falling out of the index calculation. There were significant upward pressures from the transport (predominantly motor fuels), recreation & culture and miscellaneous goods & services sectors
- The CPI stands at 123.5 in September 2012 based on 2005 = 100
- The Retail Prices Index (RPI) annual inflation stands at 2.6 per cent in September 2012, down from 2.9 per cent in August
- By far the largest downward pressure to the change in the RPI came as a result of September 2011’s utility bill rises falling out of the index calculation. The majority of the upward pressure to the index came from an increase in the price of motor fuels
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However a little digging and it becomes clear that the CPI is unlikely to stay this low for very long. It’s worth remembering that the 2.2% figure is the annual change in the CPI, it is when you look at the month-on-month changes in the CPI that you get a more up-to-date picture with what is going on.
This month the change in the CPI from a month earlier came in at 0.4%. Last month the number was 0.5%. To put this another way for the past two months the annualised rate of CPI inflation in the UK has been 5.4%. Unless these monthly numbers start to come down in the next couple of months then the CPI will only have one place to go and that is higher.
Another hint that the CPI isn’t going to stay around 2.2% for very long came from the ONS’s other report looking at the price that producers of manufactured goods pay. From the report:
- In the year to September 2012 the output price index for home sales of manufactured products rose 2.5 per cent, compared with a rise of 2.3 per cent last month
- Between August and September the output index for home sales of manufactured products rose 0.5 per cent, compared with a rise of 0.5 per cent between July and August
Basically the costs for manufacturers have popped higher the past couple of months that will eventually feed its way through to the consumer and the CPI.
And let’s not forget all that ‘extra’ CPI inflation that the BoE has produced over the past three years.
It means that the BoE has produced nearly twice as much inflation as they’ve legally been required to produce. Which means if the BoE really was trying to achieve 2% over the medium term it would require a monthly FALL in the CPI by more than 40% to achieve this.
But the timing of the report couldn’t have been better for a central bank looking to do more money printing next month. They can talk about the ‘risk of deflation’ to the economy and print to their hearts content.
- UK home prices fall nearly 1% y/o/y with 4 out the past 5 months has seening declines
- CPI inflation back to 4.5% – 21 months of BoE ‘fail’
- UK GDP is running negative when using an ‘honest’ GDP deflator
- UK CPI falls to 3% – too low for the Bank of England, money printing to start within 3 months? The IMF certainly thinks so
- UK CPI back heading in the wrong direction once again – now 28 months above mandated target
Link to this article: : http://www.goldmadesimplenews.com/analysis/uk-cpi-running-at-5-4-for-the-past-two-months-8397/