UK’s inflation back at zero shows power of commodity drop
September 14 2015 01:17 AM


Britain’s inflation rate probably returned to zero in August, pushed down by a slump in oil prices that the Bank of England says is creating uncertainty about the outlook.
Economists in a Bloomberg survey forecast that prices stagnated last month after a 0.1% annual increase in July. The data, due on Tuesday in London, will also probably show that the core rate, which strips out volatile energy and food costs, eased to 1% from 1.2%.
UK inflation has held below the BoE’s 2% target since the start of 2014, and it’s been close to zero for much of this year. That’s boosting consumer spending power, with separate data next week forecast to show a pickup in underlying wage growth to 2.9%, the fastest in more than six years.
Minutes of this month’s policy decision show policy makers expect inflation to stay close to this level for a few months before picking up around the turn of the year.
Though volatility in the oil price complicates this outlook, BoE governor Mark Carney and other Monetary Policy Committee members insist the time for an interest-rate increase is nearing. Recent global events, including a slowdown in China’s economy, haven’t shaken that view.
“The recent movement in oil prices is likely to strengthen the disinflationary pressures already affecting headline and core CPI inflation,” said Dan Hanson, an economist at Bloomberg Intelligence in London. “For that reason, the Bank of England will remain focused on signs that underlying domestic cost pressures — especially wages — are gathering pace.”
BoE watchers have mixed views on when policy will tighten. Economists in a Bloomberg survey forecast that the BoE will raise its benchmark rate a quarter point in the first three months of 2016 from the current record-low 0.5%. Investors haven’t fully priced in an increase until later in the year.
“Unless energy prices rebound significantly, inflation is likely to return only gradually towards its target, making a rate hike early in 2016 unlikely,” said Vicky Redwood, an economist at Capital Economics in London. She expects the MPC to stick at 0.5% until the second quarter of the year.

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