UK inflation: seasonals still a source of surprise
- The upside surprise in August inflation was a timely reminder of the seasonal shifts in UK inflation. Stale models can skew the consensus and market benchmark (Totem), especially during Q3.- Markit’s Totem appears to have become slightly less stale recently but remains well wide of the correct mark. A further correction could come quicker as more realistic seasonal vector submissions stop being rejected during compilation.
- September seasonal factors have trended down in recent years, and this has probably contributed to the tendency towards downside surprises. My Sep-18 RPI inflation forecast is slightly below the market, consistent with that risk skew.
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