The inflation rate remained steady at a five-and-a-half-year high in October, printing 3.0% y/y as higher food prices were offset by lower fuel costs. The official target for the CPI is 2%. The fall in the value of the pound since 2016’s Brexit referendum has contributed to the recent rise in inflation as it has increased the cost of imported goods and services.

We think the latest data could be suggesting that the worst from the pass-through impact may be over reflected by slower gains from the PPI. It also somewhat gives some breathing space for the central bank which recently raised the policy rate by 25bps to 0.50% given concerns over inflation. But the recent rate hike will take some time to seep into the economy and bring inflation back to its 2.0% target. Thus, the cash-strapped consumers will continue to feel the impact as wages lag price hikes.

• The inflation rate remained steady at a five-and-a-half-year high in October, printing 3.0% y/y. The higher food prices were offset by lower fuel costs. Food and non-alcoholic drinks rose 4.1% y/y, the highest since September 2013. The official target for the CPI is 2%.

• Meanwhile, the core inflation which excludes energy, food, alcohol, and tobacco rose 2.8% y/y from 2.7%y/y in September due to subdued auto fuel and furniture price which were down 0.4% y/y and 2.7% y/y respectively.

• The fall in the value of the pound since 2016’s Brexit referendum has contributed to the recent rise in inflation, as it has increased the cost of imported goods and services. But the latest data could be suggesting that the worst from the passthrough impact may be over. We found the Producer Price Index slowed down to 4.5% y/y in October from 8.1% in September.

• We feel the latest inflation data provides some breathing space for the central bank which recently raised the policy rate by 25bps to 0.50% given concerns over inflation. However, the recent rate hike will take some time to seep into the economy and bring inflation back to its 2.0% target. Thus, the cash-strapped consumers will continue to feel the impact as wages lag price hikes.

Source: AmInvest Research - 15 Nov 2017