UK CPI Watch: No path to 2% unless inflation deflates on a monthly basis
Welcome to our short and chart-packed preview of UK inflation out tomorrow morning.
As per usual, we deliver the conclusions up front:
1) Extreme base effects are at play in October due to energy price revisions in October 2022
The monthly wage numbers from the UK serve as a reminder that an increase in the average weekly earnings in the UK could be seen as a sign of weakness. If low-skilled workers are laid off first, the sample will change in favor of jobs with higher wage growth, which is why an increase in wages is not necessarily a sign of strength.
Claims are still rising on a trend basis and there are signs of weakening labor market trends all over in the UK. We find it likely that a soft inflation report tomorrow will solidify that view and we will show why via a load of charts below.
The CPI ran at 6.7% YoY (0.5% MoM) in September and expectations for October rest at 4.7% YoY (0.1% MoM). We see a clear downside to the consensus with a print of below 0% in the MoM figure.
Chart 1: UK annualized disinflation is clear in quarterly trends but 2% is still some room away