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Inflation bump could wear thin

Inflation bump could wear thin

GBP 
Headline UK inflation (consumer prices) rose 0.6% in August following a 0.1% decline previous monthly. The year-on-year inflation rate increased to 2.9% from 2.6% previously, equalling the 4-year high seen for June and above consensus expectations of a 2.8% rate. The core CPI rate also increased more than expected to 2.7% from 2.4% while the RPI inflation rate strengthened to 3.9% from 3.6% previously. There was significant upward pressure on food prices while the clothing and footwear rate increased to the strongest level on record at 4.6%.

The CPI data increased expectation that the Bank of England would raise interest rates and there were significant Sterling gains. Sterling surged to above 1.3250 against the Dollar and the against the Euro peaked at 1.1125 before fading.

Today’s earnings data will be watched closely and a stronger than expected reading would reinforce talk of higher interest rates ahead of Thursday’s BoE policy meeting.

EUR

Yesterday, German August HICP inflation was confirmed at 1.8% y/y, in line with the preliminary number and up from 1.5% y/y in the previous month. The breakdown confirmed that a renewed pick up in energy prices was largely to blame for the uptick in the headline rate, with prices for heating rising 10.4% y/y in August, compared to just 5.4% y/y in July and 0.9% y/y in June. Petrol price inflation also jumped higher. Energy aside, annual food price inflation as well as higher prices for clothing and shoes underpinned the uptick in the HICP rate, which leaves the German number pretty much in line with the ECB’s definition of price stability.

For the Eurozone as a whole though price developments are still looking more muted and with the strong EUR adding to downward pressure on prices, the European Central Bank remains very cautious as it prepares for another reduction in monthly asset purchase volumes.

In the Euro area, the employment figure for Q2 is due for release and will be the main economic release for today’s session. Eurozone industrial production data for July expected at 3.4%y/y from 2.6% y/y.

USD

The US JOLTS job-openings data was again stronger than expected with an increase to 6.17mn for July from a revised 6.12mn the previous month with the data series at a fresh record high which still suggested a very firm labour market. The National Federation of Independent Businesses (NFIB) small-business confidence index increased marginally to 105.3 for August from 105.2 previously. Markets were, however, aware that forthcoming data releases would be distorted by hurricane damage.

The latest US producer prices data will be released this afternoon, although the main focus will be on Thursday’s CPI data given the important focus on the recent relatively weak inflation data.

Data To Watch
07:00am EUR Wholesale Price Index (YoY) (MoM) (Aug)
09:30am GBP ILO Unemployment Rate (3M) (Jul), Claimant Count Change (Aug), Average Earnings excluding Bonus (3Mo/Yr) (Jul), Average Earnings including Bonus (3Mo/Yr) (Jul)
10:00am EUR Industrial Production w.d.a. (YoY) (Jul), Industrial Production s.a. (MoM) (Jul), n/a EUR 10-y Bond Auction
01:30pm USD Producer Price Index (MoM) (Aug)
03:30pm USD EIA Crude Oil Stocks change (Sep 4)
07:00pm USD Monthly Budget Statement (Aug)
12:01am GBP RICS Housing Price Balance (Aug).

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