The UK CPIs Overview

The cost of living in the UK, as represented by the Consumer Price Index (CPI) for August, is due early on Wednesday at 06:00 GMT.

Given the recently released unimpressive jobless benefits claims in addition to soaring energy, and the announcement of Liz Truss for UK Prime Minister, today’s data will be watched closely by the GBP/USD traders.

The headline CPI inflation is expected to refresh a 30-year high with a 10.2% YoY figure versus 10.1% prior while the Core CPI, which excludes volatile food and energy items, is likely to rise to 6.3% YoY during the stated month, from 6.2% previous readouts. Regarding the monthly figures, the CPI is expected to remain steady at 0.6%.

It’s worth noting that the recent pressure on wage prices and a downbeat jobs report also highlight the Producer Price Index (PPI) as an important catalyst for the immediate GBP/USD direction.

That being said, the PPI Core Output YoY may decline to 13.9% from 14.6% on a non-seasonally adjusted basis whereas the monthly prints could shift higher to 1.5% versus 1.0% prior. Furthermore, the Retail Price Index (RPI) is also on the table for release, which is expected to rise to 12.4% YoY from 12.3% prior while the MoM prints could ease to 0.7% from 0.9% in previous readings.

Deviation impact on GBP/USD

Readers can find FXStreet's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined around 20-pips in deviations up to + or -2, although in some cases, if notable enough, a deviation can fuel movements over 30-40 pips.

How could it affect GBP/USD?

Investors are criticizing the UK administration for revealing a jump in jobless benefits claims data revealed on Tuesday. The Claimant Count Change data accelerated by 6.3k vs. an expectation of a decline of 9.2k. The Unemployment Rate scaled down sharply to 3.6% in relation to the forecasts and the prior release of 3.8%.

The catalyst which delighted the households and the Bank of England (BOE) policymakers is upbeat Average Hourly Earnings data. The earnings data improved dramatically to 5.2% vs. the estimates of 5.0% and the prior release of 4.7%. Forced higher payouts to the households due to soaring price pressures were unable to get offset by lower-valued paychecks. Now an increment in households’ earnings will support them to cater to soaring energy bills and food prices.

No doubt, higher earnings data is music to the ears but efforts could go all in vain if inflationary pressures rise further vigorously. The BOE will go back to the square and will face significant hurdles in hiking interest rates further as the next interest rate decision is scheduled for September 22.

On the political front, Liz Truss has already announced stimulus packages to contain soaring energy prices by placing a cap on energy bills. The next UK PM has announced cuts in tax rate to offer more funds to the households while offsetting the inflation-adjusted payouts.

Technically, the cable has delivered an upside break of the consolidation formed in a narrow range of 1.1500-1.1512 in the Tokyo session. A firmer recovery attempt after picking bids below the psychological support of 1.1500 is expected to keep pound bulls in the positive trajectory for a while. Medium-to-long term Moving Averages (MAs) are still trading higher as Tuesday’s bloodbath will take time to heal.

Keynotes

GBP/USD Forecast: Additional gains likely above 1.1730

GBP/USD oscillates below 1.1500 ahead of UK Inflation

About the UK CPIs

The Consumer Price Index released by the Office for National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).