Wed Jun 13 03:30:00 CDT 2018

Consensus Actual Previous
Month over Month 0.3% 0.4% 0.4%
Year over Year 2.5% 2.4% 2.4%

Consumer prices rose a marginally firmer than expected 0.4 percent on the month in May. However, this left the annual inflation rate unchanged at 2.4 percent, matching its weakest print since March 2017.

Indeed, the only major push to the change in the annual rate came from transport where a record monthly jump saw petrol prices climb to their highest level since October 2014. A partial offset was provided by recreational and cultural goods and services where charges were up 0.1 percent on the month versus a 0.9 percent spike over the same period in 2017. Electricity (0.1 percent after 4.0 percent) also had a negative impact.

As a result, the core CPI rose a smaller 0.3 percent on the month which saw its yearly rate flat at 2.1 percent.

Today's inflation update does little to boost the chances of a hike in Bank Rate in August and certainly should have minimal impact on next week's MPC deliberations. Headline inflation has been above its 2 percent target for some fifteen months now but recent news has been quite favourable and with growth sluggish, any near-term monetary tightening could prove both premature and dangerous.

The consumer price index (CPI) is 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 the same methodology developed by Eurostat, the European Union's statistical agency, for its harmonised index of consumer prices (HICP). The CPI is the Bank of England's target inflation measure.

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.