U.K. August inflation data came in perkier than expected, with the headline consumer price index (CPI) figure spiking to 2.9% y/y, up from 2.6% y/y in July and matching the cycle high that was seen in May. The median forecast had been for a slightly softer 2.8% y/y reading.
The core CPI figure lifted to 2.7% y/y from 2.4% in the month prior. Input prices came rose to a rate of 7.6% y/y, above the median forecast for 7.2% y/y and accelerating from July’s 6.2% y/y pace. Output prices rose 3.4% y/y, up from 3.2% in the previous month.
Rising prices for clothes and motor fuels drove headline inflation higher. The pound was some 6% weaker in August this year compared to August in the previous year, which was a principal factor underpinning rises in the y/y price comparison.
The concern is that higher prices will continue to erode real wage levels in the U.K., undermining the health of the key consumer sector. Sterling popped sharply upward on the data, which will kindle hawkish arguments on the Bank of England’s Monetary Policy Committee. Cable has gained some 80 pips in making a 1.3282 high so far.