Inflation Down in September 2018

Inflation down to 2.4 Per Cent: The Office for National Statistics has released inflation figures for September 2018 with headline CPI inflation going down to 2.4% pa from August's 2.7% pa yet the old measure of inflation, RPI, fell back to 3.2% pa from its June level of 3.4% pa.

Inflation + Housing Costs CPIH

The Consumer Prices Index including owner occupiers’ housing costs 12-month inflation rate fell to 2.2% pa from 2.5% pa last month.  This is known as CPIH and a benchmark we believe that now includes 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) went down to 2.4% pa.  This is a key Bank of England (BoE) number and relieves pressure on the Bank of England to increase interest rates.

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

RPI fell back from 3.5% pa to 3.3% pa.  Although this is no longer an official 'National Statistic', it certainly gives an indication that the pound has weakened and there is slight movement in prices and still not releaving pressure on the Bank of England to increase interest rates yet again after the last 0.25% increase to 0.75% pa on the 2nd August.   The £ was a little stronger wek due to a 'yes deal' Brexit looming so imported food, goods and games prices fell.  Expect another rate rise by the end of the year given that employment and wage rise inflation have both grown.

Comment

We expect that a CPI fall and reduced RPI will no doubt maintain a weaker pound and reduce interest rate increase pressure and will push FTSE 100 stock markets up a little and indeed it has started just after these figures were released, or indeed cushioned it from the falls that global markets have suffered on 'trade war'.  That said, the interest rate rise has not strengthened the pound as expected.  We are limping towards Brexit but unemployment is at its lowest level since 1975, so inflation will, we believe, keep moving steadily upwards without Bank of England intervention.