UK inflation accelerates on transport, PC games

By BLOOMBERG

LONDON • UK inflation unexpectedly accelerated in August, boosted by the cost of theatre shows, personal computer (PC) games, transport fares and clothing.

The jump to 2.7% from 2.5% may raise questions about how quickly inflation will return to the Bank of England’s (BoE) target. The central bank increased interest rates last month to tame emerging price pressures, and some economists were expecting inflation to slow to the 2% goal by year-end, earlier than officials forecast in August.

The pound jumped after the data, reaching the highest in two months. It was up 0.4% to US$1.3206 (RM5.47) as of 9:46am London time yesterday. Bets on another BoE rate hike by mid- 2019 rose.

The BoE expected the inflation rate to slow to 2.4% last month, as did economists in a Bloomberg survey.

Instead, it rose to the highest since February. Upward pressure came mainly from the recreation and culture sector, where prices jumped 3.6%, the most since 2010.

There were offsetting influences from furniture, auto fuels and mobile-phone charges.

“We doubt it will shift thinking at the BoE. The gain reflected a confluence of price gains in volatile categories, which say little about underlying inflationary pressure. We still expect inflation to slow in the coming months, especially as the influence of pound’s past weakness wanes,” according to Bloomberg Economics.

Core inflation, which excludes volatile food, energy, tobacco and alcoholic drinks, rose to 2.1% in August.

Money markets are now pricing in a 69% chance of BoE tightening in May, up from about 60% yesterday.