Inflation Surprises To The Downside, Relative To Expectations
Despite positive momentum in the inflationary environment, UK CPI increased less than expected in January at 1.8% vs 1.9% expected. Relative to expectation, the downside surprise from this month’s reading helps normalize the recent trend of upside CPI surprises.
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The details of the report show that UK transport prices continue to provide support while there are also further signs of food prices continuing to reverse the downward pressure seen over the last year. Food inflation at -0.4% now sits at its highest level since June 2014 and while month over month rises was at a slower pace than December, leading indicators still clearly point to the continued upside.
Although this month’s downside surprise is counter to the stronger upside surprises seen recently, prices are expected to continue to rise over the coming months with input prices, domestic output prices and also selling price indicators pointing to further gains over the coming months.
Retail Sales Highlight Reluctance Among Consumers
Retail sales data for January highlighted reluctance among consumers with total retail sales volumes printing -0.3% month over month. The key element behind the weaker figure in January was non-store retailing which contracts 4.1%, followed by food store retailing and automotive fuel at -0.5% and -1.5% respectively. Indeed, the BRX Retail Sales Monitor reported that total sales rose only 0.1% year over year in January, which is well below the 3 month average of 1.1% and a one-year average of 0.9%.
December Wage Reading Below Expectations
The December wage reading was also below expectations which were skewed towards 2.7% for the regular pay, which came in at 2.6%. This reading, again, tempers the strength of November’s reading. The 3 and 6-month moving averages for regular private pay, now sit comfortably in line with last year’s average at 2%.  The fact that, for now, inflationary pressures are yet to show signs of clear transmission into wage growth, will be pleasing for the BOE who will not yet have to move on rates. However, looking ahead, rising inflation will create upside risks, with trends in inflation and unemployment consistent with further wage growth.
