UK Inflation Surprisingly Grew in August

UK inflation grew unexpectedly in the month of August due to transportation, computer games, theater, and clothing.

It increased to 2.7 percent from 2.5 percent that raises concern on how the inflation will recover in reaching the central bank’s target. The BOE adjusted higher their target rates to surpass the emerging pressure in pricing. Some economists are anticipating to slow down inflation, earlier than the forecast in August, in reaching the 2 percent target by the end of the year.

After the data reached a two-month high, the pound grew by 0.4 percent to $1.3206 around 9:46 a.m. London time. There are assumptions for another rate hike in the middle of next year.

The central already anticipated the rate to slow by 2.4 percent last month. In February was the higher growth and influenced by the entertainment and cultural sector, resulting in an increase of 3.6 percent, the highest so far since 2010. This offsets furniture, car fuels and mobile-phone charges.

The core inflation, excluding energy, volatile food, tobacco, and alcoholic drinks, increased to 2.1 percent in August.

It increased the chance of central bank tightening in May to 63 percent from 60 percent in money markets yesterday, which is after Britain has officially exited the EU in March.  However, there are rumors of ending in a no deal.

However, price inflation is not a good news for British workers as real wages still below levels even prior to the financial crisis.

Producer input prices grew to  0.5 percent on the month with an annual increase rate of 8.7 percent. On the other hand, the output prices grew to 2.9 percent on the year.