Inflation Hits 3 Per Cent

Inflation Hits 3 Per Cent.

The Office for National Statistics has today released inflation figures for September 2017, with the headline CPI inflation hitting the Bank of England’s stated ceiling of when it would look at interest rate increases.

Inflation + Housing Costs CPIH

The Consumer Prices Index including owner occupiers’ housing costs 12-month inflation rate was up to 2.8% pa compared to 2.7% pa in August 2017.  This is known as CPIH and a benchmark we believe that is now included owner occupier housing costs as mortgage interest rates are low.  This is not CPI but CPIH.

Consumer Prices Inflation CPI

The Consumer Prices Index (CPI) had a huge jump by 0.3% to 2.9% pa in August 2017 and this has risen further in September 2017 to 3.0% pa.  This is a key Bank of England (BoE) number.

Retails Prices Index (RPI) – the old measure of inflation

RPI remained the same, 3.9% pa in August and September 2017.  Maybe, this may give the BoE ammunition to not increase interest rates?

Comment

The BoE suggested in previous months that it would not ‘budge’ on interest rates until CPI hit 3.0% pa.  We are there now but what will the BoE Monetary Policy Committee do?  For credibility, they should increase interest rates and demonstrate control.   The reality is, we believe the BoE wants a weak pound to keep British exports cheaper overseas and imports into UK from overseas more expensive hopefully creating a ‘buy British’ culture both in UK and overseas.  Speculation of interest rate increase pressure will no doubt strengthen the £ for a few days and thus expect minor falls in FTSE 100.