GB: CPI


Tue Dec 15 03:30:00 CST 2015

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

Highlights
Consumer prices were fractionally stronger than expected in November. The overall CPI was unchanged from its level in October which, given the weakness of prices a year ago, was enough to see the annual inflation rate climb a couple of ticks to 0.1 percent.

The main upward contribution to the change in the yearly rate came from transport where charges fell 0.7 percent on the month compared with a 1.2 percent drop a year ago. Within this, petrol prices had a significant impact, dipping 1.5 pence per litre this year or only half the decline seen in 2014. Elsewhere, alcoholic beverages and tobacco (minus 0.1 percent after minus 1.2 percent) also had a positive effect as did miscellaneous goods and services (0.3 percent after minus 0.1 percent).

By contrast, the largest downward contribution was made by clothing and footwear where a 0.1 percent monthly drop in charges compared with a rise of 0.7 percent in November last year. This was the first fall in prices between October and November since official records began in 1996 but followed the steepest ever September-October rise. As a result, core consumer prices were also flat on the month which saw their annual rate edge up from 1.1 percent to 1.2 percent.

November's outturn was in line with the forecast made in the latest BoE Quarterly Inflation Report and should have no immediate implications for monetary policy. The latest slump in oil prices will make for renewed downside pressure this month and without a significant pick-up in wages growth (note, labour market data due tomorrow), inflation still looks unlikely to get anywhere near its 2 percent target for some considerable time.

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.