The UK CPIs Overview
The cost of living in the UK as represented by the Consumer Price Index (CPI) for September month is due early on Wednesday at 06:00 GMT. Given the recently positive inflation and employment data, coupled with the Bank of England’s (BOE) emphasis on CPI to dial back the bond purchase, today’s data will be watched closely by the GBP/USD bulls.
The headline CPI inflation is expected to remain unchanged at 3.2% on an annual basis while the Core CPI, which excludes volatile food and energy items, is likely to ease from 3.1% to 3.0% during September. Talking about the monthly figures, the CPI could soften to 0.4% MoM from 0.7% marked in August.
It’s worth noting that the supply crunch also highlights the Producer Price Index (PPI) for immediate GBP/USD direction. That being said, the PPI Core Output YoY may jump from 5.3% to 5.8% on a non-seasonally adjusted basis whereas the monthly prints can recede to 0.9% from 1.0% prior. Furthermore, the Retail Price Index (RPI) is also on the table for release, expected 4.7% YoY versus 4.8% prior.
In this regard, analysts at TD Securities said,
UK inflation for September is released on Wednesday, and we look for headline inflation to remain unchanged at 3.2% y/y (expectations: 3.2%, BoE: 3.0%) while core inflation slips a tick to 3.0% y/y (market forecasts: 3.0%). Supply-chain price pressures are starting to build, and October's 12% utility price boost will show up in next month's data. September's data is far from the anticipated peak, which we see coming next spring, when headline inflation could hit close to 5% y/y and core inflation at 4% y/y. BoE rate hikes are coming soon, though likely not until February.
How could it affect GBP/USD?
GBP/USD stays on the front foot near a five-week top, piercing 1.3800 heading into Wednesday’s London open. In doing so, the cable pair cheers broad US dollar weakness, as well as chatters that the Bank of England (BOE) inches closer to a rate hike. Also favoring the buyers are the UK gilt yields that shot higher suggesting the BOE’s rate lift before 2021 ends. By the press time, the CME Group's BoEWatch shows that there is a 70% chance of a BoE rate hike by the December 16 meeting.
That said, today’s inflation numbers could help the BOE hawks to reiterate their policy adjustment demands. The latest comments from the BOE Governor Andrew Bailey also hint at the higher interest rate should the price pressure mount. “Speaking to an online panel organized by the Group of 30, Bailey said that while central banks don’t have the tools to counter supply disruptions and he still believes the recent acceleration of inflation will be temporary, officials need to seek to prevent higher inflation expectations from becoming entrenched,” per Reuters.
Hence, a firmer CPI print will bolster the GBP/USD prices to overcome immediate resistances, namely the 100 and 200-DMA, respectively around 1.3810 and 1.3850 by the press time.
Key notes
GBP/USD bulls flirt with 1.3800 around monthly high, focus on UK inflation
UK September CPI Inflation Preview: Will rising price pressures boost British pound?
About the UK CPIs
The Consumer Price Index released by the Office for National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).