UK inflation rises above wage growth
By Oliver Haill
Date: Wednesday 15 Aug 2018
(Sharecast News) - UK inflation ticked up slightly last month for the first time since November, official figures revealed on Wednesday, but the measure used to determine rail fare hikes came in lower than expected.
The consumer price index in July was up 2.5% on the same month a year ago, the Office for National Statistics revealed, with the rate picking up from 2.4% in the previous three months, as economists expected but undershooting the Bank of England's 2.6% forecast. CPI was flat on a month-on-month basis.
A day earlier, the ONS had revealed that average UK pay in the three months to June was up 2.4%, with the month on June alone seeing average wage growth of 2.1% year-over-year. Excluding bonuses, average weekly earnings stood at 2.7% for the second quarter.
Core CPI, which excludes prices for fuel and food, remained at 1.9%, in line with forecasts. CPIH, the ONS's preferred measure as it included a measure of owner occupiers' housing costs, also remained unmoved, at 2.3%.
Factory gate inflation edged down from 3.3% to 3.1%, but input price inflation spiked up further from 10.2% to 10.9%.
The retail prices index for July, which is used by the Department for Transport to determine the annual increase for train prices from next January, dropped to 3.2%, below the 3.4% that was forecast and the 3.6% rail fare increase seen last year.
"Transport tickets and fuel, along with often erratic computer game prices, drove up costs for consumers," said ONS head of inflation Mike Hardie. "On the other hand, there was a drop in prices for women's clothing and footwear, and some financial services."
Land Registry figures revealed average UK house prices increased 3.0% for June, beating the estimated 2.6% but down from May's revised-up 3.5%. in the UK have increased by 3.0%
With the rise in CPI the first acceleration in the cost of living seen since last November, economist Christopher Williamson at IHS Markit said it goes some way to help vindicate the Bank of England's decision to hike interest rates earlier this month.
"The data follow news that wage inflation slowed in the three months to June, meaning the cost of living is once again rising at a faster rate than pay," he said. "The Bank of England expects inflation to moderate in coming months, but survey data relating to companies' costs and trade prices suggest it could remain stubbornly high, in part due to the recent depreciation of sterling."
He said this creates a problem for policymakers in that inflation "may prove sticky as the weaker pound raises import prices, but at the same time the economy is showing signs of slowing amid heightened Brexit uncertainly and a broader global slowdown".
Andrew Wishart at Capital Economics said the recent depreciation of sterling is likely to prevent inflation from falling back as swiftly as he had previously forecast. "Nonetheless, we still think that a fall back in oil prices and the ongoing reduction of the impact of the 2016 sterling depreciation will allow inflation gradually ease to 2% by the end of 2019. As a result, while real wages have started to recover, inflation is likely to prevent them from recording substantial increases, weighing on households' finances and consumer spending."
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