UK inflation data due Tuesday - more previews
UK data on inflation indicators January due at 0930 GMT
- CPI inflation is likely to have held steady at 3.0% but we think this is just a pause before further gentle but steady declines in the following months. Retail sales will probably have staged only the most modest of recoveries, rising by 0.2% mom after a fall of 1.6% the previous month. In the background all the while, Brexit problems will be ever-present with talks probably proceeding in Brussels but with a still-unclear plan from the UK side
- In January, the influences on the inflation rate are likely to be modest. We expect further evidence that food price inflation has peaked with another small deceleration and a minor downward base effect from petrol prices. These are likely to have been offset by a minor increase in core inflation from 2.5% to 2.6%, leaving overall CPI inflation steady at 3.0% yoy. -
- The very high volatility of retail sales tends often leads one to expect big falls to be followed by big bounces. However, the data for January are likely to show only the most anaemic of rebounds after a fall of 1.6% mom in December. The problem UK retailers have faced in recent years is how to maintain consumer interest after the heavy discounts now offered in November in the Black Friday sales promotions. We view this development as essentially cannibalistic, robbing sales in December and January and this season that seems to have been the case. We predict an increase of only 0.2% mom in January.
- Consumer prices: We expect a small decline in CPI inflation in January to 2.9% from 3% in December. We expect more notable declines over the coming months thanks to the inflationary effect of past falls in sterling beginning to unwind. We see CPI inflation falling below 2.5% by mid-year. As for RPI inflation we see that falling a tenth too, with downside risks on account of a possible unwind in the RPICPI wedge (which rose sharply in December).
- Producer prices: A feature of the January PMI and CBI manufacturing surveys was a sharp rise in the output price indicators (the latter to its highest since 1984). This explains our forecast for a strong rise in official output prices at the core and headline levels (0.4% m-o-m). We expect sterling's rise during January to almost offset the rise in dollar crude oil prices when it comes input prices.