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Fundamental Forex Analysis

UK annualized CPI meets estimates with 0.5% in May, GBP/USD revisits highs

  • UK CPI rises 0.5% YoY in May vs. +0.5% expected.
  • Monthly UK CPI arrives at 0% in May vs. 0% expected.
  • GBP/USD heads back towards 1.2587 on the data release.

The UK Consumer Prices Index (CPI) 12-month rate came in at +0.5% in May when compared to +0.8% booked in April while matching expectations of a +0.5% print, the UK Office for National Statistics (ONS) reported on Wednesday. 

Meanwhile, the core inflation gauge (excluding volatile food and energy items) arrived at +1.2% YoY last month versus +1.4% booked in April while missing the consensus forecast of +1.3%.

The monthly figures showed that the UK consumer prices arrived at 0% in May vs. 0% expectations and -0.2% last.

Main points (via ONS):

  • “The largest contribution to the CPIH 12-month inflation rate in May 2020 came from recreation and culture (0.23 percentage points).”
  • “Falling prices for motor fuels and a variety of recreational and cultural goods resulted in the largest downward contributions to the change in the CPIH 12-month inflation rate between April and May 2020.”
  • “Rising prices for food and non-alcoholic drinks resulted in a partially offsetting upward contribution to change.”
  • “As a result of the ongoing coronavirus (COVID-19) pandemic, we identified 74 CPIH items (or 14.2% of the CPIH basket by weight) that were unavailable to UK consumers in May, as detailed in table 58 of the Consumer price inflation dataset; this is down from 90 unavailable items in April; compared with the February 2020 index (the most recent “normal” collection), we have collected a weighted total of 81.6% (excluding unavailable items) of the number of price quotes for the May 2020 index, although the coverage varies across the range of items.”

Separately, the UK Producer Price Index (PPI) – Input for May arrived at -10.0% YoY vs. -6.0% expected and -9.8% previous. The PPI Core Output came in at +0.6% YoY in May vs. +0.6% expected and +0.6% prior.

May’s Retail Price Index stood at -0.1% MoM vs. +0.1% expected and 0% prior. On an annualized basis, the index dropped to +1.0% in May vs. +1.2% forecasts and +1.5% seen in April.

FX implications:

Following the mixed UK CPI numbers, the GBP/USD pair jumps back towards the daily highs of 1.2587, recovering most losses.

The spot trades flat at 1.2574, at the time of writing.

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