{"id":3049,"date":"2010-08-17T12:07:18","date_gmt":"2010-08-17T12:07:18","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=3049"},"modified":"2025-03-27T15:49:06","modified_gmt":"2025-03-27T15:49:06","slug":"uk-inflation-easing-but-likely-to-remain-elevated","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=3049","title":{"rendered":"UK inflation easing but likely to remain elevated"},"content":{"rendered":"<p>The fall in annual consumer price inflation from 3.2% in June to 3.1% in July reflected a larger decline in the &#8220;core&#8221; rate &ndash; excluding energy, food, alcohol and tobacco &ndash; from 3.1% to 2.6%, offset by a rise in food inflation from 1.7% to 3.0%. The core number was a favourable surprise but the impact on the near-term inflation outlook is offset by the likelihood that food price rises will remain stronger than previously expected, given recent increases in raw commodity costs.<\/p>\n<p>Incorporating today&#8217;s figures, CPI inflation is projected to ease back below 3.0% over coming months before moving up to this level again in early 2011 as the standard VAT rate is raised to 20% &ndash; see chart. This implies that Bank of England Governor Mervyn King may avoid having to write a fourth explanatory letter to the Chancellor this year. The VAT hike is expected to boost annual inflation because consumer-facing companies are expected to pass on a greater proportion of the 2.5 percentage point increase than for the identical rise in January 2010, partly because the latter was a reversal of a previous cut.<\/p>\n<p>The Bank of England&#8217;s modal forecast in the August <em>Inflation Report<\/em> is similar to the profile shown in the chart until next spring but the Bank then expects a sustained decline to below the 2% target in 2012. This is partly explained by the mechanical effect of the VAT rise dropping out of the annual comparison but the Bank is also assuming a significant fall in core inflation as a lagged consequence of the large-scale spare capacity it believes was created during the recession. The view here remains that the Bank is overplaying the excess capacity argument &ndash; the &#8220;output gap&#8221; is probably no greater than 2% of GDP &ndash; while core inflation will be underpinned by a continuing economic recovery, further upward pressure on import prices (barring a strong rebound in sterling) and an upward drift of inflationary expectations resulting from the current prolonged overshoot.<\/p>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/graphs\/uk-consumer170810.gif?__SQUARESPACE_CACHEVERSION=1282049185008\" alt=\"\" \/><\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The fall in annual consumer price inflation from 3.2% in June to 3.1% in July reflected a larger decline in the &#8220;core&#8221; rate &ndash; excluding energy, food, alcohol and tobacco &ndash; from 3.1% to 2.6%, offset by a rise in food inflation from 1.7% to 3.0%. The core number was a favourable surprise but the [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-3049","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3049","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3049"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3049\/revisions"}],"predecessor-version":[{"id":5358,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3049\/revisions\/5358"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3049"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3049"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3049"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}