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Monthly inflation hasn’t been so fast for a while

Even if usually inflation is measured using a year over year growth rate, looking at the monthly inflation can give us some interesting indications.

Consumer prices grew by 0.7% in the month and this was the fastest pace since February 2017 when inflation started to pick-up on the aftermath of the Brexit referendum and the consequent Sterling devaluation.



This sharp acceleration was not expected considering that the last two months had no changes in prices. Moreover, this result was not just related to volatile items such as food and energy, indeed core CPI was up by 2.1% from 1.9% seen in July.


What’s to blame?

The CPI pick-up registered in the last two months after the 2.4% registered from March to June was broadly related to transport costs.

As we highlighted back in June, your personal rate of inflation has been way higher in these months if you usually travel by car. In August transport CPI grew by 6.1%.




However, transport costs are not the only one to blame for the 2.7% CPI result. As we can see from the graph above, recreation & culture contribution accelerated as well. In particular, higher prices were registered for computer games and theatre tickets.


That’s bad news for workers and their real salaries

Last week there was some excitement after the labour market release which showed how total earnings grew by 2.6% and regular earnings by 2.9% in the three months to July. These numbers translated to real growth rates of 0.2% for total pay and 0.5% for regular pay.

However, the further pick-up in annual inflation will dent workers pockets which were starting to enjoy some relief after a long period of contracting real wages.


What about the producer side?

If CPI is accelerating, producer prices are showing some signs of slowing down.

The headline figure for goods leaving the factory gates is down to 2.9% from the 3.1% figure in July. Input prices are also going down even if their rate is still very high at 8.7% - down from 10.3% in the previous month.

The divergence between CPI and PPI might be explained by the fact that producer prices reacted faster to the oil price increase and they touched their peak in June. The oil price increase effect is now felt by consumers more than producers with the transport cost rise as the clearest example.


The pressure is not over but the peak should be behind us

On the output side, petroleum products are still registering the highest annual growth rate (+14.4%) amongst all the components, however the monthly growth rate is now trending down after the peak of May (+0.8% month on month growth in August).

On the input side, the situation is even more stressed with monthly PPI growth for crude oil stable at the same level of a month ago – but up 39.4% in the year.

The pressure is not over for manufacturers, however the situation on the input side is getting better for the moment and this was also reflected on our margins balance reported on our latest Manufacturing Outlook. If you haven’t already done it, check it out here.


Blog / Policy / Economic policy