UK inflation data slows in September

UK Consumer Price Index inflation slowed to 3.1% in September from 3.2% in August, the ONS said. Analysts had been expecting another 3.2% figure. The ONS said this was largely because of “base effects.” A meal subsidy scheme launched in August 2020 pushed up year-on-year inflation in August this year. It came to an end in September 2020, which weighed on last month’s figures. There were signs of strong inflation elsewhere. The UK, like countries around the world, has been hit by sharply rising energy prices and supply chain problems. Economists say Brexit is likely to have made the disruption worse.

BoE interest rate decision expected

Financial markets now think the BoE will raise interest rates from their record low level of 0.1% this year, making it the first major central bank to do so. Traders now expect a rise to 0.25% in November.

Eurozone inflation in focus

According to the earlier flash estimate, Eurozone CPI inflation increased to 3.4%y/y in September, well above the ECB’s new 2% symmetric inflation target. Today’s final release is expected to confirm that outturn. Headline CPI is the highest since 2008, with the rise in recent months reflecting higher energy prices, the broader impact of supply issues, and base effects from Germany’s VAT changes. Inflation is expected to rise further in the near term before falling back next year, returning to 2% in the second half of 2022.

Canada inflation expected to mark the highest reading since 2003

Canada also releases September CPI today, seen rising to 4.3%y/y which would be the highest since 2003. The Bank of Canada is currently expected to keep interest rates on hold until around the middle of next year. 

There are a few Fed speakers today, including Vice Chair Quarles who will discuss the economic outlook. This evening’s Fed Beige Book survey may also warrant attention as it provides a summary of economic conditions based on anecdotal information. In particular, what the report says about labour market and broader supply conditions will be particularly interesting.

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