UK Inflation Slowest Since 2016; Output Prices Turn Negative

uk aug15 20may20

UK inflation slowed to the lowest since 2016 in April and factory gate inflation turned negative for the first time since mid-2016 as the coronavirus lockdown has weighed on global oil prices, data from the Office for National Statistics showed Wednesday.

Consumer price inflation eased to 0.8 percent in April from 1.5 percent in March. Economists had forecast the rate to ease to 0.9 percent. The latest rate was the lowest since August 2016.

Core inflation that excludes energy, food, alcoholic beverages and tobacco, slowed moderately to 1.4 percent in April from 1.6 percent in March.

The consumer prices index including owner occupiers' housing costs rose 0.9 percent year-on-year in April, slower than the 1.5 percent increase in March.

Transport cost fell 1 percent, clothing and footwear costs decreased 2.9 percent and housing, water and electricity prices dropped 1.1 percent annually. Meanwhile, food and non-alcoholic beverages prices increased 1.3 percent.

On a monthly basis, consumer prices dropped 0.2 percent after remaining flat in March. Prices were forecast to fall marginally by 0.1 percent.

James Smith, an ING economist said headline inflation is set to head down towards zero over the summer, and with unemployment rising, price pressures are unlikely to return rapidly any time soon.

With the figures triggering the first in what is likely be a series of letters from the Bank of England Chief to the Chancellor explaining why inflation is more than 1ppt below the 2 percent target, the pressure to loosen monetary policy further is likely to grow, Ruth Gregory, an economist at Capital Economics, said.

Another report from the ONS showed that output prices declined for the first time since June 2016 driven by lower cost of petroleum, chemicals and pharmaceuticals.

Output prices decreased 0.7 percent annually in April reversing a 0.3 percent rise in March. Economists had forecast a 0.4 percent decrease.

On month, output prices fell 0.7 percent after falling 0.2 percent in March. This was also faster than the expected -0.5 percent.

At the same time, input prices declined the most since December 2015. Input producer price inflation was driven mostly by commodity prices, the ONS said.

Prices plunged 9.8 percent on year versus March's 3.1 percent decrease. Economists had forecast 8.7 percent annual fall.

On a monthly basis, input prices logged its biggest fall on record. Prices fell 5.1 percent after falling 3.8 percent in March. Input prices were forecast to decrease 4 percent.

In a separate communiqué, the ONS said house prices logged an annual growth of 2.1 percent in March versus a 2 percent rise in February.

House prices in London advanced 4.7 percent, which was the largest annual growth the capital has reported since December 2016.

The ONS said fewer transactions were available in March due to the restriction imposed to reduce the spread of the coronavirus. The House Price Index will be suspended until further notice from the April 2020.

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