Inflation CPI slows to 2.6% in June ...

Headline inflation CPI slowed to 2.6% in June from 2.9% a month earlier. Most analysts had expected an increase above the 3% rate in the month. The slow down will come as no surprise to readers of The Saturday Economist. Oil prices and the depreciation of Sterling exacerbated the increase in prices. We expected prices to peak in the first or second quarter this year as the ￡ rallied and the fall in oil prices to $30 dollars, fell out of the year on year comparison.

As always we monitor the variance in goods inflation and service sector inflation. Goods inflation slowed to 2.6%, service sector inflation remained stubbornly above target at 2.7%. The average for the first six months of the year was 2.5% (services) and 2.1% (goods).

Producer price inflation also eased back. Output prices increased by 3.3% compared to 3.6% prior month. Input costs fell below 10% having peaked at 20% at the start of the year.

So where next for prices? Sterling closed above $1.30. Oil Brent Crude closed below $50 dollars. The imported inflation impact will mitigate through the rest of the year, despite the strong growth in world trade and commodity prices.

So what of rates? The Bank of England doves will hold back on a rise in base rates as long as earnings remain subdued. By the end of the year, we expect inflation to average around 2.5%. Still above target, especially in the service sector but no cause for the hawks to fly high just yet ...

This post will feature in The Saturday Economist Update on the 22nd July 2017. Sign up for the weekly updates on the UK and World Economy ... don't miss out!