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Economy in Brief

UK Inflation Turns Sharply Lower
by Robert Brusca August 14, 2007

Inflation is slowing on a broad front in the UK in July - a quite unexpected development. Year/year, the Harmonized Index of Consumer Prices (HICP) is now below the 2% ceiling rate and suddenly that BOE inflation letter explaining why inflation had drifted above 3% seems oh so distant. The Retail Price Index (RPI) is still high but the Retail Price Index ex Mortgage Interest Payments (RPIX) tells the tale of sharply lower inflation too. Food costs are sharply lower. So are clothing and footwear, where price fell over three months.

This could be somewhat of a catalytic month for the BOE as well as for the ECB. Not only are we in the midst of financial turmoil at a time that the ECB had pointed strongly to a rate hike, but GDP growth has slowed. Now inflation, the reason for hiking rates is sharply lower, at least in the UK but also in France. Are things changing all that much or is this coincidence? Do you believe in Coincidence?

UK HICP and RPI Inflation
  M/M % Change % SAAR
  Jul-07 Jun-07 May-07 3-MO 6-MO 12-MO Yr Ago
HICP -0.3% 0.3% 0.1% 0.4% 1.5% 1.9% 2.4%
RPI: All Items -0.3% 0.6% 0.3% 2.4% 3.5% 3.8% 3.3%
RPIX (ex mortgage interest) -0.3% 0.5% 0.2% 1.4% 2.3% 2.7% 3.1%
RPI ex seasonal food -0.2% 0.6% 0.3% 2.5% 3.5% 3.9% 3.2%
Food & Beverages -0.9% 0.9% 0.2% 0.7% 3.7% 3.2% 2.7%
Housing & HH Expenditures -0.5% 1.0% 0.3% 3.1% 4.3% 6.8% 5.1%
Clothing & Footwear 0.1% 0.1% -0.4% -0.8% 2.8% 0.1% -1.3%
Leisure Services -0.1% 0.3% 0.2% 1.9% 1.3% 2.8% 2.1%
Leisure Goods -0.1% -1.4% 0.1% -5.6% -4.8% -3.0% -2.5%
Motoring Expenditures -0.4% 0.7% 1.0% 5.2% 3.9% -0.3% 3.1%
Fares and Travel Costs 0.0% 0.9% 3.1% 17.3% 10.9% 8.6% 0.0%
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