UK inflation posts surprise drop in September

Wednesday, October 14, 2015

Inflation in the UK posted a surprise drop in September as the headline CPI figure slipped below zero. Market participants were expected a flat 0% y/y change in consumer prices in September but were caught on the back foot when data came in at -0.1% y/y, the second time a negative reading has been registered since 1960. Petrol and clothing contributed to the depressed price outlook with the pessimistic figures vindicating officials at the Bank of England who have recently argued that conditions in the UK are still some way off being stable enough to support an interest rate increase.

The GBP fell to an eight month low against the euro on Tuesday as weaker than expected inflation data dampened the outlook for an incoming rates rise. The pound traded 1.2% lower, touching 1.3346 against the euro at one point as comments that inflation risks are skewed to the downside and that the currency was overvalued from new MPC member Gertjan Vlieghe  prompted investors to pull out of the pound. Investor’s will be paying close attention to today’s release of UK unemployment data for any surprises which could affect the Bank of England’s outlook and timeframe for tightening monetary policy. The claimant count rate is expected to hold firm at 2.3% in September while consensus estimated for the ILO unemployment rate are steady at 5.5% for the three months up to August.

Asian equities drifted lower on mounting Chinese deflation concerns after data released overnight saw consumer price inflation fall from 2.0% y/y in August to 1.6% y/y in September. Producer prices continued to stagnate with PPI in September holding steady from the previous month at -5.9% y/y. Major Asian equity benchmarks traded in negative territory throughout much of the night as downward price pressure persists and businesses continue to face considerable economic headwinds. Growth concerns continue to plague the outlook for investors in China with PBOC intervention over the past few months unable to stem the flow of pessimistic data releases. Next week’s release of retail sales and industrial production data for September as well as third quarter GDP data will allow investors to gauge whether or not policymakers in Beijing have been successful in supporting the Chinese economy, however, judging by median analyst estimates there could be some more pain to come.  

UK inflation posts surprise fall to -0.1% y/y in September

UKRPCJYR Index UK CPI EU Harmon 2015 10 14 07 29 58

Sterling loses more ground against EUR

GBPEUR Curncy GBP EUR X RATE 2015 10 14 07 37 26

Chinese factory gate prices still in the doldrums

CHEFTYOY Index China PPI Yoy 2015 10 14 07 53 23

Events for today

0230

CN

Sep

CPI

0930

UK

Sep

Claimant Count

1000

EZ

Aug

Industrial Production

1330

US

Sep

Retail Sales

1500

US

Aug

Business Inventories

1530

US

w/e

EIA Energy Stocks

1900

US

Sep

Fed Beige Book

Topics: GDP, Inflation, GBP, CPI
More from: Kash Kamal