Inflation dip temporary

Commenting on this morning’s UK inflation data, Melanie Baker, Senior Economist at Royal London Asset Management said: 

“Inflation fell more than expected in July, but the dip is likely to prove temporary. It isn’t likely to alter the path of monetary policy either. Though inflation fell short of consensus expectations, it barely missed the Bank of England staff forecasts. Those forecasts from earlier in the month then expected a swift bounce to 3.0% year-on-year for the CPI measure.

“So-called base effects were behind a lot of the move in CPI inflation today, and will go on to play a role in a subsequent rise in inflation. Over the medium-term though, it will be more important to track underlying inflationary pressure driven by the balance of demand and supply in the domestic economy rather than some of these more temporary factors.

“It will be important to keep an eye on the labour market and what happens to pay pressure in the economy, especially once the furlough scheme ends in the Autumn.”

–ENDS–

The views expressed are the author’s own and do not constitute investment advice.