UK inflation rises to 1%

CPI inflation in the UK has reached a two year high, increasing to 1% compared to 0.6% the previous month, according to the latest data provided by the Office for National Statistics (ONS).

According to the ONS, rising prices of clothing, hotel stays and fuel were the main contributor to an increase in pricing.

Taking into account the impact of falling exchange rate of the British Pound, ONS highlighted that the goods with the most significant impact on UK  inflation were relatively less import intensive, a rise of their prices was therefore independent of foreign exchange rate movements. Moreover, it added that a 1% rise of prices still constituted a historically low level of inflation.

At the same time, the latest ONS data did acknowledge that the falling pound was starting to affect producer price inflation, with producer prices increasing for the third month in a row to 7.2%, a trend which could eventually affect output producer prices.

Shilen Shah, bond strategist at Investec Wealth & Investment comments on the latest data: “The September inflation print is a confirmation that the long period of low inflation is over, with year-on-year CPI increasing to 1% from 0.6% in August. The combination of higher input prices -rising 7.2% in September and a higher oil price is likely to put some upward pressure on future inflation prints in the coming months. Governor Carney’s comments last week are however a confirmation that the BoE will not react to the data, as it continues to view the currency’s fall as a shock absorber to the uncertainty created by the Brexit vote.”

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