Macro Hive Inflation Model – UK Headline and Core YoY to Print Above Consensus
- By Sam van de Schootbrugge
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- 2 min read
Summary
- We have developed a new framework that utilises trends in analysts’ forecasts to predict upcoming UK inflation prints.
- Our model suggests both headline and core YoY CPI could land higher than consensus (6.7 vs 6.6 and 6.1 vs 6.0, respectively).
- The higher-than-average degree of dispersion in analyst forecasts suggests there is a good chance consensus is currently wrong.
October 2023
As of Monday, 16 October, both headline and core y/y inflation are expected to beat consensus. Rounding to the nearest 1st decimal place, we find:
- UK MoM Headline CPI: 0.5 vs 0.5 consensus (Chart 1).
- UK YoY Headline CPI: 6.7 vs 6.6 consensus (Chart 2).
- UK YoY Core CPI: 6.1 vs 6.0 consensus (Chart 3).
Dispersion in Analyst Forecasts
Higher dispersion (or disagreement) among analyst forecasts reflects uncertainty about upcoming data releases. We exploit this dispersion to provide a probability that consensus will be wrong. Alongside our model, it indicates the upside or downside risk associated with upcoming data releases.
Consensus has performed particularly poorly in the UK over the last 12 months. Charts 4-6 show elevated probabilities of consensus getting it wrong since 2020, which it has done on most occasions. As a result, there is greater disagreement among analysts, relative to the US.
For MoM headline inflation, just under half of analysts agree with consensus. Those who disagree have tended to go lower. We put the probability of consensus being wrong at below average.
Only a third and a quarter of analysts agree with consensus for headline and core y/y inflation, respectively. For core, nearly half of analysts are higher than consensus, while for headline, most sit below 6.6%. This lack of unanimity reflects the higher-than-average probability of consensus being wrong.
