UK inflation hits 40-year high at 9.1%

LONDON – UK inflation hit 9.1% year-on-year in May, as soaring food and energy prices continued to exacerbate the country’s cost-of-living crisis.

The 9.1% rise in the Consumer Price Index, released on Wednesday, was in line with economists’ expectations in a Reuters poll and slightly above the 9% rise recorded in April.

Consumer prices rose 0.7% in May from the previous month, up slightly Expectations are for a 0.6% increase, but it is much lower than the 2.5% monthly increase in April, indicating that inflation is slowing somewhat.

In its communications along with the numbers on Wednesday, the UK’s Office for National Statistics said its estimate indicated inflation “could have been higher around 1982, with estimates ranging from around 11% in January to around 6.5% in December”.

The largest increasing contributions to the inflation rate have come from housing and household services, especially electricity, gas, and other fuels, along with transportation (mainly motor fuels and used cars).

The consumer price index, including the cost of housing for homeowners, held steady at 7.9% in the 12 months through May, up from 7.8% in April.

“The higher prices of food and non-alcoholic beverages, compared to the fall of last year, led to the largest upward contribution to the change in CPI and CPI inflation rates in the 12 months between April and May 2022 (0.17 percentage points for CPI), the bureau said. Statistics in his report.

Last week, the Bank of England made its fifth consecutive hike in interest rates, although it fell short of the sharp rises seen in the US and Switzerland as they seek to tame inflation without exacerbating the current economic slowdown.

The bank’s key interest rate is currently still at a 13-year high of 1.25% and the bank expects CPI inflation to exceed 11% by October.

The UK’s Energy Regulatory Authority raised the domestic energy price cap by 54% from 1 April to accommodate higher wholesale energy prices, including record gas price increases, and has not ruled out raising the cap on your regular reviews this year.

cost of living crisis

The inflation data released on Wednesday is a reminder of the challenges facing the central bank, government, businesses and consumers, said Paul Craig, portfolio manager at Quilter Investors.

“It is disappointing that the cost of living crisis is short-lived, and ends up leaving the Bank of England caught between a rock and a hard place,” said Craig.

“While the US has recognized the need to act decisively and quickly on interest rates, the Bank of England continues to operate at a slower pace, trying not to push the economy into recession at a time when businesses and consumers are feeling the pressure.”

However, he noted that the bank’s current strategy does little to prevent inflation from escaping, which means “tougher decisions will be made very soon” as the bank has already hinted at an even bigger rally at its next meeting.

A recent survey showed that a quarter of Britons skipped meals due to inflationary pressures and a food crisis that combined with what Andrew Bailey, governor of the Bank of England, called “terrible” expectations for consumers.

Besides the external shocks facing the global economy – such as rising food and energy prices amid the war in Ukraine and supply chain problems due to the ongoing bottlenecks of the Covid-19 pandemic – the UK is also dealing with domestic pressures, such as the dismantling of a government. Historic financial support for the pandemic era and the effects of Brexit.

Economists have also noted signs of tightening labor market conditions and offsetting core inflation in the broader economy. The UK is currently preoccupied with major national rail strikes, and Nobel Prize-winning economist Christopher Pissarides told CNBC on Tuesday that the labor market is “worse than it was in the 1970s”.

Quilter’s Craig noted that the government and central bank will be watching the labor market closely, and not just for indications of more strikes due to delayed wage increases compared to inflation.

“With inflation as it is, any sign of weak employment would be a huge red flag for the economy,” he said.

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