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Economy in Brief

UK Inflation Begins To Settle Down
by Robert Brusca September 10, 2010

PPI inflation is not in the gun-sights of any central bank that targets inflation. But it's an important ingredient in the inflation mix. Most measures of inflation tend to have the same cycles so in each there is a reason to take note. The PPI happens to be one of the most timely measures of inflation; it's already available for August. The chart shows the UK's PPI upsurge has been breaking off. The 12-Mo, 6-Mo and 3-Mo rates of PPI inflation all have peaked in the UK. Three month inflation is currently oscillating at a low level below the 2% rate.

Overall inflation for manufacturing is in a steady decline from 12-Mo to 6-Mo to 3-Mo. The same is true for core inflation.

While the PPI's pace is not the gauge that is nearest and dearest to the hearts of those that make policy at the BoE, these inflation trends are reassuring. To be sure what happens in the retail price index or the HICP will be more important, but right now there is still a bit of commodity price inflation in the air of the world economy and that is one channel the PPI pins down quite well. We can see it is tempered. With the economy, weak service sector inflation is unlikely to provide much inflation boost. If goods sector inflation is this well under control, overall inflation must really be settling down. It's good news for the BOE, not decisive, but good news.

UK PPI MFG Net Output Prices
                        %M/M %-SAAR
  Aug-10 Jul-10 Jun-10 3Mo 6Mo 12Mo 12Mo Yr-Ago
MFG 0.3% 0.1% -0.4% 0.0% 2.6% 4.7% -0.4%
Core 0.3% 0.1% 0.0% 1.7% 4.3% 4.6% 0.8%
Core: ex food beverages, tobacco & Petroleum
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