UK Inflation Rises

UK inflation is rising. Whereas weakening oil prices seem to be containing inflation everywhere else, particularly in the European Monetary Union, but also to some extent in the United States, we see in the United Kingdom that headline inflation is on an uptrend, core inflation is on an uptrend, too, not quite as discernible as this, but it’s nonetheless on its own uptrend.

Headline inflation for the UK CPI-H measure rose by 0.6% in April after 0.2% in March and in February. The CPI-H version of core excluding food, energy, alcohol, and tobacco rose by 0.4% in April after rising 0.3% in March and 0.2% in February.

Sequential inflation rates show the CPI-H up 4% over 12 months, up at 4.7% pace over 6-months and up 3.9% at an annual rate over 3-months. All of these rates are excessive compared to the Bank of England’s 2% target. A year ago, the headline was running at 3.1% year-over-year; conditions have worsened since then even in the face of what have been lower and falling global energy prices.

The sequential trend for the CPI-H core measure shows a gain of 4.3% over 12-months, a 4.6% annual rate rise over 6-months and a 4% annual rate gain over 3-months. The only clear pattern we have from these various periods is that in all of them the inflation rate is excessive; and one year-ago the core year-over-year pace was 4.4%. So, conditions appear as though they may have improved marginally since then, but again I would emphasize that I’m only saying that it appears so, and that the improvement is marginal.

Diffusion calculations show the breadth of acceleration period to period and demonstrate that inflation acceleration has become less common than it was a year ago when headline inflation was up 3.1%. The diffusion of inflation was only 9.1% then, that tells us that the overall inflation rate was 3.1% and that prices were not generally accelerating across most categories only in 9% of them. However, this year the diffusion gauge for the headline that has inflation up to 4% is at 54.5% and then the gauge over 6-months with the inflation rate is 4.7% has diffusion also at 54.5%. And both of those horizons’ inflation is accelerating slightly more than it’s decelerating since the diffusion measures are above the neutral value of 50. However, over 3-months when the inflation rate settles down a bit to 3.9% the diffusion measure is only 36.4%, indicating that the breadth of inflation has narrowed and that there is now more deflation than there is inflation over 3-months. That comes from comparing the inflation rates when 3-month inflation was 3.9% to 6-months when it was 4.7%. The slightly improved diffusion gauge is therefore not surprising; however, it’s also encouraging that it suggests that the slower inflation rate has more breadth to it and isn’t just the result of one or two rogue categories that may have tipped the balance.

At the bottom of the table as a reference we have the unemployment rate as well as the UK claimant rate of unemployment and on these measures we you can see that the economy has been weakening slightly The year ago unemployment rate was 4%, the claimant rate was 4.1% over the last 12-months it moved up to 4.3% with the claimant rate still at 4.1% over 3-months. The unemployment rate is up to 4.4% compared to 4.5%; the claimant rate shows the unemployment rate has been creeping up although there’s nothing draconian in train. This is not a happy report for the Bank of England. Inflation is still not under control and while the breadth of inflation may have been cut over three months all of the inflation data suggest that inflation is stubborn and that it has been stubborn and that there’s a slightly accelerating trend that is still underway. This is an unfriendly report.