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UK CPI hotter than expected

Market Analysis

GBPUSD, Daily

UK May inflation data came in hotter than expected, with the headline CPI figure rising to 2.9% y/y, the highest rate since June 2013 and up from 2.7% y/y in April. The Bloomberg median forecast had been for a slight dip to 2.6% y/y. The core CPI reading rose to 2.6% y/y from 2.4% in the prior month. Despite perky consumer prices, which were driven by price rises in a broad range of component categories, PPI input prices ebbed to 11.6% y/y from 15.6% while output prices came in unchanged at 3.6% y/y. The pound saw some chop in the wake of the release, but the net impact has been limited. This data still fits the BoE view, and the central bank has clearly signaled that it is looking through the current phase of above-target inflation, anticipating a return to 2.0% target next year. The latest average household income data, out tomorrow, will now be scrutinized, although sterling markets are rather more preoccupied with UK politics than UK data presently (how the fledgling minority government will fare, whether the prime minister can survive, and what all this means for the Brexit process).

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Andria Pichidi

Market Analyst

HotForex

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