We see the May CPI data reversing the rise seen in April, coming is notch below the 2.0% consensus. Indeed, last time around, and almost solely a result of a rise in energy costs related to the lifting of a price cap, alongside a late-Easter induced rise in airfares, April CPI data saw headline inflation jump from 1.9% y/y, ie a notch above the 24-month low seen briefly in January, back up to a four-month high of 2.1%.
This was in spite of weaker clothing and household goods inflation still acting as an offset, all being a continued testimony to the malaise on the high street as weak demand has forced retailers into even deeper discounting. However, the late Easter failed to boost food inflation or package holiday costs.
This latter expected-effect helps explain why the core rate stayed at 1.8%! The rate would have fallen further save for the impact of the Easter driven rise in airfares. Notably, this is likely to unwind in the upcoming May numbers (albeit probably rise again somewhat in June due to Whitsun). Asa result, the core measure may fall a notch to 1.7%, the lowest in well over two years
Underscoring the weakness in terms of prices seen on the retail front, the y/y drop in clothing prices in April (at -1.9%) was the second most marked fall in almost a decade, this explaining the weakness in the retail price deflator and the clear divergence between this the broader and more formal consumer price inflation measures!
This headline outcome we expect would be a notch below BoE thinking as laid out in the May Inflation Report.
Higher energy prices boosted the PPI numbers released alongside, but more benign numbers are expected in the update due alongside the CPI. More notable, however, will be the house price data, the latter possibly becoming a more pertinent factor for the BoE as it wrestles with the downside risks that have emerged for the near-term outlook (for both prices and growth). Here at least, at 1.4% y/y, house price inflation in March picked up from the lowest in over six years, ie when Help to Buy was installed!