UK CPI Unexpectedly High, Retail Prices Down

From The Guardian

Higher-than-expected inflation defies City forecasts
CPI unchanged at 1.8%, compared with predictions of 1.5%
RPI -1.4% from -1.6% a month earlier
Julia Kollewe guardian.co.uk, Tuesday 18 August 2009
The City was caught on the hop today with data showing higher-than-expected inflation last month.

Consumer prices were unchanged in July from June, keeping the annual rate at 1.8% – defying analysts' forecasts of a fall to 1.5%--government figures showed this morning. Sterling rose by half a cent against the dollar on the news, while government bond prices dropped. But the City and the Bank of England still expect inflation to dip to 1% or below in coming months.

The largest upward effect on consumer prices came from computer games and DVDs where prices rose this year but fell in July last year, the Office for National Statistics said. This pushed inflation in the communications category to its highest rate since the start of last year.

There was also less discounting on furniture and clothing in the July sales than last year, probably because furniture prices were not hiked as much as normal in June, the ONS said.

These factors offset falling meat and vegetable prices and smaller price increases at restaurants and cafes than a year ago. Food price inflation hit its lowest rate in two years, while inflation at hotels and restaurants was the slowest since records began in 1997.

George Buckley at Deutsche Bank said: "The consumer price index (CPI) has proved to be a bit more sticky than we thought it would be. However, I do think the rate of inflation will fall quite sharply in August and September, and that is not because we are expecting any specific price falls between now and then but rather we are expecting the big rises in energy prices from a year ago will drop out of the comparison--base effects alone that will take inflation possibly down to around 1% in a couple of months' time."

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