UK CPI (Apr) – 24/05 – having seen the Bank of England hike rates by another 25bps this month to 4.5% this week's CPI numbers for April could go some way to indicating whether we can expect to see another hike at the June meeting.
In recent months UK CPI has remained very sticky, largely driven by food prices which have been rising at close to 20% per year. Unlike its EU and US counterparts the CPI numbers haven't full reflected the decline in energy prices that we've seen over the last few months, however there is an expectation that is merely an effect that has been deferred due to the government energy price cap, which has prevented this effect trickling down into the headline numbers. With the government having withdrawn the package at the end of March, there is now an expectation that this will be reflected in this week's April numbers, in a move that could well be quite sizeable, over the next quarter. This time last year oil prices were above $100 a barrel while UK natural gas prices were over double the level they are now. Expectations are for headline CPI to fall sharply to about 8%, while core prices are forecast to remain steady at 6.2%.
The removal of the language that signalled that more hikes were coming was a notable omission from the Fed statement, and while not inherently dovish, it did strike the right tone in acknowledging the recent change in financial conditions, which are now tighter, without ruling out the possibility that rates could still rise further. The ensuing press conference by Powell was uneventful, however he was at pains to push back on the idea that rate cuts could well soon follow. Powell went on to say that the Fed's next move would depend on how the data and events evolved, but in the context of a tight labour market and high inflation levels, rate cuts still seem some way off. The Fed also indicated that rates are unlikely to come down quickly, with policymakers keen to stress that rates are likely to remain high for some time to come. As we look to this week's minutes the key question is likely to be how much of a caucus there was for a delay instead of the hike that we got, and whether there was a discussion over how many more rate hikes might be needed or whether we are close to the peak.
In January we saw a surprise gain of 0.9%, followed by an even more solid performance of 1.1% in February. It wasn't too much of a surprise to see a -0.9% decline in the March retail sales numbers with economic activity supressed somewhat by wet weather as widespread strike action amongst healthcare and transport staff, which would have suppressed spending across the board. As Q2 gets under way the Easter holidays will probably have seen an uplift, however the bigger question given that we have seen strike action ripple over into April is how much that has acted as a lag. The recent CBI retail sales numbers did show a modest improvement in April, as did the latest British Retail consortium numbers, so it's unlikely that retail sales will be worse than March. Expectations are for a rise of 0.3%.
