In September, CPI inflation unexpectedly fell from fell from 1.5% to 1.2% yoy. This was taken by some as clear evidence of mounting disinflationary pressures. Certainly they exist but the main reason for the surprise was a big decline in transport cost inflation where air and sea fare inflation dipped. This is a holiday-related phenomenon more usually seen around Easter-time but the ONS highlights this as an explanation. The nature of this effect means that it is likely to be reversed in the following one or two months and that is what we expect to see in the October data. Commodity prices remain soft. We expect food inflation to have been stable at -1.4% yoy but the fall in petrol prices of 1.5% mom will actually lead to an increase in the yoy rate from -6.8% to -4.8%. The overall result should be an increase in CPI inflation from 1.2% yoy to 1.4% yoy. RPI inflation should rise from 2.3% yoy to 2.4% yoy.
The median market forecast is 1.2 % y/y and 0.1 % m/m for the headline numbers.
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