Unless you’re a Bank of England policymaker, inflation data out of the UK wasn’t on the top of your “must read” list Wednesday.
Joe Biden was in Israel to reassure America’s closest Mideast ally a day after a horrific blast at a hospital in Gaza materially raised the odds of war with Iran, or at least war with Hezbollah. And Vladimir Putin was in China to help Xi Jinping celebrate the 10th anniversary of a $1 trillion global infrastructure initiative, but also to discuss the Russia-China strategic partnership at a pivotal moment for the world.
Suffice to say there were big things going on Wednesday, and UK CPI data wasn’t one of them.
Still, the figures were worth a mention. The BoE narrowly decided to hold off on another rate hike last month, and the future of the bank’s tightening cycle is just as indeterminate as the macro variables upon which it’s predicated. Wednesday’s data was befitting in that regard: It was confusing and inconclusive.
Headline CPI was unchanged at 6.7% in September. Economists wanted a slight downtick.
Food costs receded, but that was offset by an “an upward effect” (as ONS put it) from transport, where higher fuel prices resulted in a much slower YoY drop in the price of motor fuels in September compared to August. On a MoM basis, fuel costs rose 3.6%.
Although core CPI slipped to 6.1%, the slowest annual pace since January, services inflation ticked up to 6.9%, an unfortunate development which might temper the ostensibly dovish read-through from marginally cooler wage data released earlier this week.
I won’t spend a ton of time on the figures because, again, they were overshadowed by far more consequential events this week, but the fate of the UK economy is something we can’t lose track of. As a quick reminder: The UK remains an outlier among developed nations. A protracted period of vexing stagflation remains a serious risk, and the BoE has proven woefully incapable in the forecasting department.
Inflation is expected to fall this month on base effects tied to household energy bills, and Rishi Sunak might still be able to realize his target of cutting the headline figure in half by year-end. But the UK is nowhere near out of these woods, and if the vote split from last month’s BoE meeting was any indication, there’s nothing like consensus on the MPC about what to do next. It’s disconcerting when policymakers are as divided as the MPC seems to be. It suggests that, collectively at least, the people who are supposed to know what’s going on don’t.
Between slower food inflation and the lower energy price cap, the headline may look favorable when this month’s CPI figures are released in November. But there just isn’t much here that’s conclusive, which means the BoE has to sit around and hope for clarity. It could be a long wait, particularly if the recent increase in oil prices proves stubborn.
