Inflation decelerated surprisingly sharply in September. A smaller than expected 0.1 percent monthly increase in consumer prices reduced the annual CPI rate by fully 0.3 percentage points to 2.2 percent. This more than reversed August's 0.2 percentage point rise and put the rate at its lowest mark since March 2017.
The monthly drop in the headline yearly rate was attributable to transport, where prices fell 1.8 percent versus August compared with a 1.3 percent decrease in the same period in 2017, and food and non-alcoholic beverages (minus 0.1 percent after 0.8 percent). Clothing and footwear (3.1 percent after 3.9 percent) also weighed as new season price hikes were more restrained this year and so did recreation and culture (0.3 percent after 0.8 percent). The only boost of any significance came from utilities (0.2 percent after 0.1 percent) and miscellaneous goods and services (0.3 percent after minus 0.1 percent).
As a result, the core CPI was also soft; showing no change from August and a 1.9 percent 12-month rate, down from 2.1 percent last time. The CPIH measure preferred by the ONS edged 0.1 percent higher on the month and was up 2.2 percent on the year after a 2.4 percent advance previously.
Following the surprising strength shown by regular earnings in yesterday's labour market report (see calendar entry), September's fall in the BoE's targeted measure of inflation should ease any concerns that prices pressures are about to get out of hand. The retention of a tightening bias still seems all but guaranteed at November's MPC meeting but the next hike in Bank Rate probably remains a good way off yet.