Previous posts extending back to last summer argued that the trend in UK inflation would shift from down to up in spring 2014 in lagged response to faster monetary growth and associated economic strength. The higher-than-expected June number reported today is consistent with the forecast but recent volatility suggests waiting for July data before concluding that the trend has turned.

Annual consumer price inflation fell from 1.8% in April to 1.5% in May but rebounded to 1.9% in June. Some commentators argue that the June rise is a blip that will be reversed in July; the preferred view here, by contrast, is that May was the outlier, with June representing a return to trend.

“Blip” proponents attribute the June rise to a delayed start to summer sales, particularly for clothing and footwear. Annual clothing and footwear inflation of 2.4% in June, however, compares with an average of 1.3% over the prior 12 months. Even if all of this difference reflects a sales timing effect, the implied boost to CPI inflation is less than 0.1 percentage points*.

The focus here is on “core” inflation, i.e. excluding energy and unprocessed food and adjusted for VAT changes and the 2012 jump in undergraduate tuition fees. This rose to 2.0% in June, the highest since September. The chart below, an update from a post in August 2013, shows that major turning points in core inflation over the past decade have followed trend changes in broad money expansion roughly two years earlier, consistent with the Friedmanite rule. The rule suggests a further move higher through early 2015, at least.

*Clothing and footwear has a 7.1% weight in the CPI basket.