October's Inflation Print May Be Market Moving

Every month a team of specialists in UK collects around 180,000 separate prices of over 700 items covering everything a typical family might buy, such as milk, bread and bananas. The results of analysis is published evry month as CPI report. The October reading report will be published on November 16.

Previous data

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.8% in the 12 months to September 2022, up from 8.6% in August and returning to July’s recent high.

The largest upward contributions to the annual CPIH inflation rate in September 2022 came from housing and household services (principally from electricity, gas and other fuels, and owner occupiers’ housing costs), food and non-alcoholic beverages, and transport (principally motor fuels).

On a monthly basis, CPIH rose by 0.4% in September 2022, compared with a rise of 0.3% in September 2021.

The Consumer Prices Index (CPI) rose by 10.1% in the 12 months to September 2022, up from 9.9% in August and returning to July’s recent high.

Rising food prices made the largest upward contribution to the change in both the CPIH and CPI annual inflation rates between August and September 2022.

Inflation

Returning to double-digit inflation will be difficult for ministers and the Bank of England. It shows that price increases have not yet reached their peak, despite the energy price guarantee that will reduce gas and electricity bills this winter. September's inflation figures highlight the severity of the UK's inflation crisis and comes as the country is going through a period of economic instability.

The central bank will assess rising price pressures against the government's recent changes to unfunded tax cuts, which could help ease inflation in the coming months.

Double-digit inflation is expected to continue. And it will increase again to the level of 10.6%. The monthly change is also forecast to increase by 1.2%.

✕

Source: investing.com

The Outlook

Inflation has been on an upward trajectory, and since May this year the pace has accelerated to double digits.

Gross domestic product fell 0.2% from the second quarter, a slightly better outcome than the 0.5% decline feared. Overall in the third quarter, service sector output was flat, driven by a fall in consumer-facing services. Retail sales volumes in particular fell 1.9% in the period.

The negative data adds to the country’s dampened economic outlook and already depressed consumer sentiment.

Some model predicts the UK to enter a recession as early as this year. This is largely due to surges in inflation as the cost of living crisis impacts all demographic groups.

The central bank of England expects GDP to continue falling through 2023 and into the first half of 2024.

Expectatiosn

Here are few reasons why we expect inflation in the UK to fall sharply from the middle of next year.

First, the price of energy won’t continue to rise so quickly. The Government has introduced a scheme that caps energy bills for households and businesses for six months.

Second, Bank Of England don’t expect the price of imported goods to rise so fast. That’s because some of the production difficulties businesses have faced are starting to ease.

Third, there can be less demand for goods and services in the UK. That should mean the price of many things will not rise as quickly as they have done.

Source: https://www.ons.gov.uk/, investing.com