UK: CPI inflation to rise to 0.7% in August - RBS

Research Team at RBS, notes that the UK headline CPI rose to 0.6% in July, above their forecast and the consensus at 0.5% (City forecast range: 0.4%0.9%).

Key Quotes

“NB, it was a 'low 0.6%': 0.563% to 3dp. Core CPI inflation fell to 1.3% in July from 1.4%, above our forecast at 1.2% and below the consensus at 1.4% (City forecast range: 1.1%1.8%; source: Bloomberg).

At the headline level, the main upside effect came from petrol prices (adding 0.04pp to CPI inflation) and food & beverages (0.08pp). There were partially offsetting downside influences from recreation & culture, household appliances and medical products. All-items RPI inflation rose unexpectedly sharply to 1.9% in July from 1.6% in June (our forecast was 1.6%, consensus: 1.7%, City range: 1.3%1.8%; source: Bloomberg).

Going forward, we forecast CPI inflation to rise to 0.7% in August, mainly reflecting energy price base effects. We expect core CPI inflation to remain at 1.3%. RPI inflation is forecast to fall to 1.7% August, principally reflecting the impact of the 25bp Bank Rate cut on mortgage interest payments. Over a longer horizon, CPI inflation is forecast to rise sharply towards the end of the year, reaching 1.4% at end2016 and climbing to a 2.6% peak in September 2017.”