UK inflation back in double-digits amid the highest food price inflation since 1980
In line with our forecast, UK inflation rebounded in September, reversing the 0.2ppt drop in August to be back in double-digits at 10.1%Y/Y, matching July’s near-40-year high. The principal cause of the rise last month was food, prices of which rose for the twelfth consecutive month and by 0.9%M/M to push the respective annual rate up 1.4ppt to 14.8%Y/Y, almost 14ppts higher than a year earlier and the highest since 1980. That, however, was partly offset by a further drop in the motor fuels component, which saw transport inflation ease 1.4ppts to 10.6%Y/Y, the lowest since last October. And so energy inflation temporarily edged below 50%Y/Y for the first time since March. But prices of other goods including clothing (8.8%Y/Y), household appliances (10.6%Y/Y), and new cars (6.9%Y/Y) continued to trend higher, to leave non-energy industrial goods inflation up 0.4ppt to 7.0%Y/Y. Meanwhile, higher prices of accommodation services due to differing seasonal patterns between this year and last, pushed services inflation up a further 0.2ppt to a new high of 6.1%Y/Y. So, core inflation rose 0.2ppt to 6.5%Y/Y.
BoE Deputy Governor Jon Cunliffe and Executive Director for Markets Andrew Hauser are due to appear before the Treasury Select Committee this afternoon to testify on the Bank’s recent gilt market intervention, with its plans for sales of gilts and corporate bonds – the former of which will start on 1 November – also likely to be discussed.
Euro area inflation likely to be nudged slightly lower from flash estimate but remain at a series high
September’s final inflation estimates from the euro area are also due today. Given the modest downwards revision to the Italian and Spanish HICP rates, we now think that the headline euro area HICP rate will be nudged slightly lower from the flash estimate, by 0.1ppt to 9.9%Y/Y, albeit still up 0.8ppt from August and a series high. Meanwhile, the core inflation rate is likely to be unrevised at a record-high 4.8%Y/Y, 0.5ppt higher than August. Wednesday will also bring the latest euro area construction output data for August, which are expected to suggest only moderate growth over the summer, with a rebound in Germany (1.9%M/M) partially offset by a decline in France (-1.0%M/M).
US housing market indicators to be closely watched
Focus in the US today will be on housing market indicators, with housing starts figures likely to report a sizeable drop in September (Daiwa America’s team expects a decline of around 5%M/M) following a surge in August and reflecting waning demand amid a jump in borrowing costs. Indeed, weekly mortgage applications numbers are likely to have dropped for the ninth week out of the past ten in the second week of October. Fed-speak will include Kashkari, Evans and Bullard at separate events.