• UK CPI climbs to 10.1% YoY in September vs. 10.0% expected.
• Monthly UK CPI arrives at 0.5% in September vs. 0.4% expected.
• GBP/USD falls to test 1.1300 on upbeat UK CPIs.

The UK Consumer Prices Index (CPI) 12-month rate came in at 10.1% in September when compared to 9.9% booked in August while outpacing estimates of a 10.0% print, the UK Office for National Statistics (ONS) reported on Wednesday. The index surged to its highest level since 1982.

Meanwhile, the core inflation gauge (excluding volatile food and energy items) rose to 6.5% YoY last month versus 6.3% seen in August, beating the forecasts of 6.4%.

The monthly figures showed that the UK consumer prices accelerated by 0.5% in September vs. 0.4% expectations and 0.5% previous.

The UK Retail Price Index for September arrived at 0.7% MoM and 12.6% YoY, above estimates across the time horizon.

FX implications

In an initial reaction to the UK CPI numbers, the GBP/USD pair eroded nearly 20 pips to test 1.1300 once again.

The pair was last seen trading at 1.1299, down 0.17% on the day. The US dollar extends recovery in the early European morning.

Why UK inflation matters to traders?

The Bank of England (BOE) is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.