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Is the transient inflation narrative finally happening?

UK inflation as measured by the Consumer Price Index (CPI) fell in the latest report from 2.5% in June to 2% in July, slightly lower than expectations of 2.3% and back to the Bank of England’s target level.

Tuesday, August 17, 2021

UK inflation as measured by the Consumer Price Index (CPI) fell in the latest report from 2.5% in June to 2% in July, slightly lower than expectations of 2.3% and back to the Bank of England’s target level. The core CPI measure of 1.8% for July also was below expectations of a 2% advance but does this latest inflation swoon signal the end of the building inflation pressures? Is the transient inflation narrative that central banks have been espousing finally happening? July saw the majority of Covid-19 restrictions lifted in the UK and the surge in consumer activity has not translated yet into runaway inflation pressures. If the UK experience is reflective of what is happening in the US, then retail sales may also be shifting lower and this will naturally put a lid on higher price pressures. Bank of England officials certainly will be sleeping easier with this latest inflation trend, despite expecting it to move higher over the next few quarters; corporates perhaps less so as input price pressures remain elevated and this has to be eating into margins and profitability.

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Charles Hepworth

Investment Director
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