UK inflation spikes above BoE forecast

Photo: EPA

The inflation in the UK surged by 2.1 percent in May, topping the expectations of the Bank of England, Reuters reported. The increase of consumer prices was fueled by post-pandemic surge in demand for consumer goods. The May CPI rise comes on top of April's 1.5% increase. The figures proved that it was the first time inflation has gone above the BoE's 2% target in almost two years. Economic analysts had expected inflation in UK to accelerate by 1.8.

Investors around the world are assessing the risks of a sustained jump in prices, especially in the United States where annual inflation hit 5.0% in May, the highest in almost 13 years, and where President Joe Biden has proposed a $6 trillion stimulus package.

The CPI data showed fuel prices in May were almost 18% higher than a year earlier while clothing and footwear costs rose by 2.1% as people, emerging from their lockdown isolation, bought new outfits.

The price data was collected on or around 11 May, before pubs and restaurants were allowed to serve customers indoors and cinemas and hotels reopened from 17 May. The BoE has said it expects inflation to hit 2.5% by the end of this year before settling back to its 2% target as the impact of post-lockdown energy price rises fades along with other cost pressures, such as bottlenecks in supply chains. Previous surges in inflation since the 2008 financial crisis proved temporary, as the labour market was too weak to create the type of wage-price spirals which occurred in the 1970s. Core inflation, which excludes the price of food, energy and other volatile items, rose to 2.0% in the 12 months to May, the Office for National Statistics said. While BoE Governor Andrew Bailey and most of his colleagues say the climb in inflation will be temporary, Chief Economist Andy Haldane said last week the central bank faced the "most dangerous moment" since the European Exchange Rate Mechanism crisis in 1992.

Prices paid by manufacturers for their inputs rose by 10.7% in the 12 months to May, the highest since September 2011, and the prices they charged rose by 4.6%, the biggest increase since January 2012.

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