Wednesday, October 17, 2012

Inflation near three-year low, producer price inflation speeds up in September

LONDON (Reuters) - Inflation fell to its lowest in almost three years in September flattered by sharp utility price rises a year earlier, official data showed on Tuesday, but factory gate prices rose at a faster pace.



"(The figures) are all in line with expectations and no great surprises. Core inflation is remaining fairly well behaved.

"Inflation is higher than the MPC were expecting in August but it is still coming down, so I think that provides room for more easing in policy by way of QE in November. Clearly that is a closer decision than it was."


"Slightly stronger than we had thought. I think alcohol prices were up a little bit, utilities prices were down although that is only going to last really for this month, in those annual terms.

"We're back at three year low but output inflation started to tick up again so the pressures that we know are there from energy and food prices are now coming into factory gate inflation and that's going to feed back into CPI in the months ahead.

"So we have a one month's respite largely called by base effects and I think after that we would expect inflation now to accelerate again going into year end.

"In reality, we're looking at the squeeze into real household income which has been the constraint on consumption. That is going to continue now into mid-2013.

"Does this mean that the MPC won't be voting to extend QE? This is roughly in line with where we were, last year the rise in utilities prices didn't prevent them from doing a bit more QE so I don't think that will be a constraint this time around.

"But the hope they had that we would see real income start to grow from early next year really now looks like to have been dashed."


"UK inflation fell to within a whisker of its 2 percent target in September, although the fall is likely to be the last for a while.

"As expected, the main downward effect came from last year's rise in utility prices dropping out of the annual comparison. Core inflation was unchanged at 2.1 percent (we had hoped it would fall a bit), while food inflation also stayed broadly the same.

"Inflation might now edge up a bit over the next couple of months. The recently announced utility price increases will add 0.1 percent to inflation for each of the next 3 months. And food prices could start to rise as past commodity price increases feed through, while the rise in tuition fees will boost inflation in October.

"However, inflation should stay pretty close to the 2 percent target and we still expect it to fall below 2 percent further ahead in response to the weakness of demand and spare capacity in the economy.

"While next month's MPC decision is shaping up to be a relatively close call, we still expect more asset purchases to be announced in the coming months."


"This is as low as the inflation data is going to go. This is the best chance we had to hit the two percent inflation target and we failed. But the tide has now turned and utility price hikes will push (it) up. Tuition fee increases will likely also have an effect.

"I think they'll hold back from additional QE, but let's see."

(Reporting by Sven Egenter, Peter Schwartzstein, Li-mei Hoang and Tim Castle)


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