GB: CPI


Tue Aug 18 03:30:00 CDT 2015

Consensus Actual Previous
Month over Month -0.3% -0.2% 0.0%
Year over Year 0.0% 0.1% 0.0%

Highlights
Consumer prices retreated 0.2 percent from June and saw the annual inflation rate remain at zero, but remain within the tight minus 0.1 to 0.1 percent range seen since February. That exceeded the forecast of no change, which was also the expected outcome of Bank of England staff, as reported in the August Quarterly Inflation Report.

Clothing and footwear prices jumped an annual rate of 1.7 percent. The increase reflected a return to the seasonal pattern of clothing pricing after a larger than usual decline between June and July of 2014. That lifted core inflation to an annual rate of 1.2 percent, its fastest pace since February after a 0.9 percent gain in June.

Food and non-alcoholic beverage prices fell by an annual rate of 2.7 percent. The sector has not experienced a price rise in 15 months, the longest stretch on record according to ONS.

The June figures were in line with the latest BoE forecast and so will come as no surprise to the central bank. Nonetheless, despite recent signs of acceleration in wage growth and skills shortages in certain sectors, the inflation shortfall versus target remains substantial. The majority of MPC members should continue to favor no change in Bank Rate until much later in the year and, more probably, well into 2016.

Definition
The consumer price index (CPI) is defined as an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using HICP methodology developed by Eurostat, the European Union's statistical agency. The CPI is the Bank of England's inflation measure.

Description
The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as the UK, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.