The consumer prices index (CPI) for the United Kingdom remained flat in month-on-month terms during September, but the year-on-year rate fell to 2.2 per cent, following a rate of 2.5 per cent in August, according to the latest data out today from the Office for National Statistics (ONS).

The consensus estimate had been for an increase of 2.2%.

That was the slowest rise since November 2009, when it showed an increase of 1.9%.

As far as the year-on-year comparisons are concerned, the majority of the downward pressure to the change in the CPI rate came from the housing & household services sector, with September 2011's utility bill rises falling out of the index calculation, the ONS explained. That subtracted -0.43 per percentage points from the yearly rate of change.

On the other hand, there were significant upward pressures from the transport (predominantly motor fuels: +0.12pp), recreation & culture and miscellaneous goods & services sectors (+0.07).

The largest increases in prices versus August were seen in clothing (+4.7%) and alcohol&tobacco, whilst prices for transport dropped by 1.3% and those for communications and food&alcoholic beverages remained unchanged.

The retail prices index (RPI) fell to 2.6% after 2.9% in the month before (Consensus: 2.6%), while the RPIx rate -which excludes mortgage payments- also dropped to 2.6% from 2.9%.

Commenting on the above data economists at Barclays Research are saying that: "We expect to see additional inflationary pressures in the coming months. Four of the 'big six' energy firms have already announced price hikes of 6-9%, which will boost the CPI print between October and December. We expect the remaining two large firms to follow suit by early 2013, with a total impact on CPI inflation of about 0.3 percentage points.

Hikes in university tuition fees in October and an increase in fuel duty planned for January will provide a further boost. Further out, we expect firms' margins to come under pressure from low productivity growth and resulting increases in unit labour costs, with more aggressive price-setting behaviour as a result. We therefore expect inflation to increase in October and to remain above the BoE's 2% inflation target in the near to medium term."

Investec's Victoria Geoghan is of a similar bent, pointing out that: "(...) Finally, note that there looks to be further upward pressure from food prices in the pipeline, with the summer droughts in the US having ignited grain prices since pre-summer months. Taken overall, these pressures could see inflation heading back into the mid-3% range by the middle of next year. Depending on how these upside pressure evolve, there still looks to be a chance that Sir Mervyn King could have one final letter to write to the Chancellor next summer, before he steps down, explaining why CPI inflation has run in excess of 1% above the 2% target (for three months)."

Lastly, it must be noted that both economists fully expect the Bank of England to see through the one-off factors which are expected to push consumer prices higher in coming months.

AB

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