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Rise in food prices pushes WPI inflation higher

Rise in food prices pushes WPI inflation higher

Retail food prices contracted for a third straight month, falling 0.29 percent in July from a year ago, compared with a 2.12 percent fall the previous month.

The wholesale price index rose 1.88 percent in July from a year earlier, compared with an increase of 0.63 percent in July 2016, government data showed on Monday.

United Kingdom inflation continues to trade above the central bank's target of around 2% due to increased input price pressure.

The ONS said that the main downward pressure came from a drop in motor fuel prices, which was largely offset by rises in the price of clothing, utilities and food. However, the price of wagons (3%) and bicycles of all types (2%) declined.

Analysts said rising inflation reduced the chances of another rate cut by the Reserve Bank of India, which has a central inflation target of 4 percent. -0.7%. The Bank of England has already said in its latest Inflation Report that earnings growth would be negative for the rest of this year, so the bigger shock would be a decent reading of United Kingdom retail sales on Thursday even if real incomes are contracting.

Including bonuses, wages rose 2.1 per cent, from 1.9 per cent in the three months to May and against expectations of 1.8 per cent.

It was also found that the year-on-year increase in producers' raw material costs fell to 6.5% last month, down from 10% in June - the biggest month-to-month slowdown in nearly five years.




Still, it's a headache for BOE policy makers that wage growth has failed to sustainably pick up even with unemployment at the lowest in more than 40 years.

Core CPI inflation - which strips out energy and food prices - was also unchanged since June at 2.4%.

The divergence between the price and wages growth will likely continue weighing on the real wages and cool down the inflationary pressures as a outcome.

The increasing cost of the shopping basket is expected to have contributed to a rise in inflation when figures are released later.

Despite the financial pressure, consumer spending has remained robust.

"While inflation has eased back from a peak of 2.9% in May to 2.6% in July, offering some relief to consumers, it will still highly likely have been above pay growth, thereby resulting in a further drop in consumers' real earnings". Earlier this month RBI had cut the key interest rate as inflation had fallen well below its estimated numbers. Inflation is then forecast to fall to 2.6% in 2018, before settling at 2.2% in both 2019 and 2020 respectively.


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