By Luigi Marinus, Portfolio Manager at PPS Investments
Consumer price inflation increased by 4.3% year on year as at the end of August 2019. This was up from the 4.0% year on year increase in July. This now marks the ninth consecutive month that year on year inflation was at or below the midpoint of the target band and the twenty-ninth consecutive month that year on year inflation is below the top end of the target band.
Food and non-alcoholic beverages (0.6% to 0.7%), housing and utilities (1.2% to 1.3%), transport (0.4% to 0.5%) and recreation and culture (0.0% to 0.1%) each had a small increase to the contribution to year on year inflation, while the residual declined from -0.1% to -0.2%.
Month on month inflation declined from 0.4% to 0.3%, with notable changes in food and non-alcoholic beverages (0.0% to 0.1%), housing and utilities (0.6% to 0.1%) and transport (-0.2% to 0.0%) with the residual increasing from 0.0% to 0.1%.
The important question facing the Monetary Policy Committee (MPC) in their interest rate decision this week is what the trajectory of inflation is. It has been nearly two and a half years since inflation has breached the upper end of the target band and has been at or below the midpoint for the whole of 2019 thus far, but the repo rate is at the same level as one year ago. If the MPC does see an upward trajectory to inflation they will however be unlikely to increasing rates even in this currently seemingly benign inflation environment.
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