The main focus will be on the UK CPI report though, with that coming in hot and fresh. As for the Eurozone CPI report, it will be the final estimate for July. So, that typically isn’t really a market mover as the numbers don’t tend to deviate much from the initial readings.
The UK inflation figures will be of much interest, as it will play into how markets take to the BOE outlook in the final few months of the year. The inflation pulse will carry more weight compared to the labour market data from yesterday. So, that will make the data release today much more important.
Headline annual inflation is estimated to see a rebound from the June low of 2.6% (unrounded 2.65%) to 2.9% in July. Meanwhile, core annual inflation is estimated to dip slightly to 2.5% (unrounded 2.52%) – compared to the June reading of 2.6% (unrounded 2.57%). The core estimate if seen thereabouts, will keep close by to the BOE’s own forecast of 2.55%.
The pick up in headline inflation is once again due to the swing in energy prices. The rise in the Ofgem price cap for Q3 will also be part and parcel of that, so that is likely to boost energy price inflation. In turn, that will also lead to a boost to headline inflation.
As for services inflation, it is expected to remain sticky but reflect a decline to 3.4% in July (compared to 3.6% in June). Some analysts are pointing to base effects in air fares with some also expecting the government’s Great British Summer savings policy to put a drag on prices for recreational and
catering services. On the latter though, the range of calls are either for it to not have any material impact to it being a 0.1% to 0.2% drag on headline inflation.
Barring any major surprises, the numbers shouldn’t change the BOE outlook all too much at the end of the day. Traders are pricing in ~78% odds of no change for September with the next decision in November being more of a coin flip.
So unless inflation unexpectedly threatens a surge back to 3% or higher, the BOE can rest a bit easier today ahead of the upcoming policy decision next month.
As for the Eurozone inflation figures, they will likely just reaffirm what we already know from the preliminary report:
The only difference is that pricing for a September rate hike has firmed in recent weeks, with the odds showing ~91% now. That comes after some recent hawkish commentary from the ECB in posturing for the next move. Adding to that, higher energy prices and recent US-Iran developments are just putting more pressure on policymakers to make their final move. From last week: ECB poised to deliver another rate hike in September – poll
This article was written by Justin Low at investinglive.com.