Indicator Digest - CMS Forex

Consumer Price Index

CPI is one of the most widely used measure of inflation, as it follows the price changes experienced by consumers when purchasing goods and services. This is usually measured by a following an index of a certain "basket of goods", that is made up of the the items needed by a household. "Core" CPI usually excludes volatile items, such as food and energy, in order to get a better sense of price changes without these prices factored in.

Main Indicator: Consumer Price Index y/y

Most Recent Release

May
13th, 2008

Actual

Forecast

Revised Form

3.0%

2.6%

2.5%

N/A

For April
Provided by: Office of National Statistics

Core CPI y/y: 1.4%, forecast 1.3%, pr. 1.2% (Mar), 1.2% (Feb)
CPI m/m: 0.8%, forecast 0.5%, pr. 0.4% (Mar), 0.7% (Feb)

Coming on the heels of yesterday's producer data, the UK releases its April consumer prices which beat expectations on the upside. The annual pace of inflation rose to 3% - the highest in 13 months, with the core annual rate increasing to 1.4% from March's 1.2%. On the month, consumer inflation was 0.8% higher - the biggest increase in nearly 7 years.

The two pieces of data, PPI and CPI, will put serious pressure on the Bank of England, which would like to support economic growth by cutting interest rates. Policy members have admitted they face a tough balancing act, and their attention and focus may now shift back to combating inflation, which means a cut in the next meeting may be off the table and the bank may take an even more gradual pace to cuts going forward. The bank is concerned with inflation in the medium to long term, and a slowing economy may prove to lower inflation by itself.

The Pound jumped stronger following the release, but pared those gains and was lower vs the Dollar by the start of NY trading, as the higher inflation data pressured London stocks.

Table of Past Data

	8/14	9/18	10/16	11/13	12/18	1/15	2/12	3/18	4/15	5/13

Actual	1.9%	1.8%	1.8%	2.1%	2.1%	2.1%	2.2%	2.5%	2.5%	3.0%
Forecast	2.3%	1.9%	1.9%	1.9%	2.2%	2.0%	2.3%	2.5%	2.6%	2.6%
Previous	2.4%	1.9%	1.8%	1.8%	2.1%	2.1%	2.1%	2.2%	2.5%	2.5%
Revised From	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A

Past Releases

April
15th, 2008

Actual

Forecast

Revised Form

2.5%

2.6%

2.5%

N/A

For March
Provided by: Office of National Statistics

Core CPI y/y: 1.2%, forecast 1.3%, pr. 1.2%
CPI m/m: 0.4%, forecast 0.6%, pr. 0.7%

Today's inflation data mitigated the effects of higher producer prices seen yesterday. Though a welcome sign for the central bank as it gives policy makers extra leeway to cut rates, the prospects of more interest rate cuts will weaken the value of the Pound. Following the consumer inflation report, and news of a new all time low in the RICS housing prices report, the Pound hit a new all time low vs the Euro, and reached a six-week low vs the Dollar.

Annual inflation matched February's figure which was still a 9 month high, while the monthly rate came down to 0.4%. In a similar predicament as in the US, UK inflation expectations have declined on speculation slowing growth will probably ease price pressures.

From the Release:

"CPI annual inflation – the Government’s target measure – was 2.5 per cent in March, unchanged from February.

The largest downward contribution to change in the CPI annual rate came from furniture, household equipment and maintenance where the price of furniture and furnishings rose by less than a year ago. A further large downward contribution came from recreation and culture, principally from games, toys and hobbies where the prices of computer games and pre-school activity toys in particular fell this year but rose a year ago.

The largest upward contribution to change in the CPI annual rate came from transport costs. This was principally due to passenger air travel on European and, to a lesser extent, long-haul routes with fares rising this year compared with falls a year ago. There was also a large upward contribution from housing and household services due to changes in the price of heating oil and gas."

March
18th, 2008

Actual

Forecast

Revised Form

2.5%

2.2%

N/A

For February
News Summary from Office of National Statistics

CPI Core y/y: 1.2%, forecast 1.4%, pr. 1.3%
CPI m/m: 0.7%, forecast 0.8%, pr. -0.7%

A big part of the price increase for February has to do with the change in the way prices are recorded. These changes had an upward effect on the inflation figures because electric meters were recorded when they woulnd't have previously. Food and industrial goods rose significantly, but core inflation was tame. This inflation report tells the BoE that short term inflation is elevated and is volatile. However, manageable core inflation allows for another rate cut.

February
12th, 2008

Actual

Forecast

Revised Form

2.2%

2.3%

2.1%

N/A

For January
News Summary from Office of National Statistics

CPI Core y/y: 1.3%, forecast 1.5%, pr. 1.4%.
CPI m/m: -0.7%, forecast -0.6%, pr. 0.6%

" CPI annual inflation – the Government’s target measure – was 2.2 per cent in January, up from 2.1 per cent in December.

The largest upward pressure came from an increase in the price of road fuels. Average petrol prices rose by 1.3p in January to stand at 103.9p per litre, compared with a fall of 0.8p a year ago. There was also a large upward effect from food. There was a further large upward contribution from furniture where, overall, price reductions in the January sales were less than in the previous year. There was a large downward effect from clothing and footwear."

January
15th, 2008

Actual

Forecast

Revised Form

2.1%

2.0%

2.1%

N/A

For December.
News Summary from Office of National Statistics
CPI Core y/y: 1.4%. forecast 1.5%, pr. 1.4%.
CPI m/m: 0.6%, forecast 0.5%, pr. 0.3% (Nov).

Inflation to consumers remained above the 2% target level , unchanged from November and October. Food prices played a big role in price increases, along with clothing.

The Pound gained on the news, gaining 150 pips on the Dollar.
GBP/USD

December
18th, 2007

Actual

Forecast

Revised Form

2.1%

2.2%

2.1%

N/A

For November.
Official Release from National Statistics Office

CPI Core y/y: 1.4%, forecast 1.6%, pr. 1.5%
CPI m/m: 0.3%.

Year-over-year inflation increased 2.1% for the month of November, matching October's level. Economists had predicted a 2.2% increase. The lower inflation figure gives the Bank of England more leeway in pursuing further interest rate cuts if they deem it necessary. The biggest contributor to rising prices was gasoline.

November
13th, 2007

Actual

Forecast

Revised Form

2.1%

1.9%

1.8%

N/A

For October.
Office of National Statistics

Core CPI y/y: 1.5% (Oct), consensus 1.6%, pr. 1.5% (Sept).
CPI m/m: 0.5% (Oct), consensus 0.4% , pr. 0.1% (Sept).
Core CPI m/m: 0.3% (Oct)

Consumer prices rose 0.5% on the month and 2.1% on the year in October. This compares to the 0.1% and 1.8% seen in September. The data falls above the Bank of England's 2.0% target for annual inflation. The central bank will now have less room to cut rates if it deemed it necessary to maintain growth.

October
16th, 2007

Actual

Forecast

Revised Form

1.8%

1.9%

1.8%

N/A

For September

UK consumer price inflation unexpectedly held steady at 1.8% y/y in September, below the Bank of England’s 2% target for a third month, the Office for National Statistics said.

According to the ONS, the downward drag came from housing and household services, and clothing and footwear. These effects countered the price increases for food and non-alcoholic beverages which were buoyed by dairy products.

GBP/USD trading was very quiet before the UK releases, with the pair staying near 2.0420. After CPI came in below expectations, the pair fell close to 120 pips to set a low below 2.0300. Today's low was was lower than Sunday night's (10/14), but the pair had reached 2.0250 last Friday (10/12).

GBP/USD UK CPI

September
18th, 2007

Actual

Forecast

Revised Form

1.8%

1.9%

N/A

The CPI year-over-year cooled again in August, continuing a trend that has seen the prices to consumer fall from a record high of 3.1% in April to 1.8% in August (3.1% in April, 2.8% in May, 2.5% in May, 2.4% in June, 1.9% in July). The main downward contribution was a reduction in the cost of financial services as some lenders cut their mortgage exit administration fees in light of a review of these fees. Other large downward contributions came from gas and electricity bills falling as a result of lower tariffs, and lower clothing and footwear prices that did not meet last year's increase.

The improved situation to inflation is a welcome sign to the Bank of England which has had a bias in recent months towards combating inflation. However, the bank now face threats to the economy brought about by higher credit costs that could weaken overall economic growth.

According to Bloomberg, consumers are shouldering a record 1.3 trillion pounds ($2.6 trillion) in debt, a decade-long housing boom is cooling and the bank was last week forced to bail our mortgage lender Northern Rock Plc. With these conditions, the bias of the central bank may shift to containing the fallouts of higher credit costs than in combating inflation.

August
14th, 2007

Actual

Forecast

Revised Form

1.9%

2.3%

2.4%

N/A

According to ONS, consumer price inflation eased in July limited by price cuts supermarkets made across a wide rage of food products such as bread and cereals, meat, fruits and vegetables. Furniture and furnishings prices also contributed to the falling prices by dropping falling more than 10%. Only clothing and footwear registered inflation.