UK inflation jumps to 2.1%, above Bank of England target, as fuel and clothing prices rise – business live | Business
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Inflation across the UK exceeded the Bank of England target for the first time in nearly two years, as the cost of fuel, clothing and restaurants jumped as the economy exited of the Covid-19 lockdown.
The UK Consumer Price Index jumped to 2.1% in May, from a year ago, significantly higher than April’s 1.5%, according to just released data.
This is the highest CPI reading since July 2019, and above the 1.8% expected by economists – and slightly above the BoE’s target of 2% inflation.
The Office for National Statistics says that transport made the biggest upward contribution to inflation over the past year, with rising gasoline prices hitting motorists at the pumps.
Rising prices for Clothing, good recreationals such as games and recording media, and meals and drinksis exhausted has also increased the cost of living, compared to May 2020, when the UK was in lockdown. The CPI rose 0.6% in May alone.
But food and non-alcoholic drinks are having a downward impact on inflation, as prices fell this year but rose a year ago, especially for bread and grains.
Core inflation, which excludes the price of food, energy and other volatile items, reached 2.0% in the 12 months leading up to May, the Office for National Statistics said.
The data may fuel concerns that inflation will exceed the Bank of England’s 2% target for longer than expected.
Last week, BoE chief economist Andy Haldane said Britain was at a dangerous time, with “pretty hard-hitting price pressures” and the risk of wages and prices starting “a leapfrog game ”, leading to a wage-price spiral (but not on the scale of the 70s and 80s).
Also coming today
Inflation will be high on the agenda in Washington today, where US Federal Reserve policymakers are holding their monetary policy meeting. The Federal Open Market Committee could signal to Wall Street (and beyond) that it is considering slowing the speed of its bond-buying stimulus program, given the recent rebound in growth and prices.
The FOMC will also release new economic forecasts, while investors look at its updated ‘dot plots’ which show where members expect interest rates to be over time. This could bring forward the probable date of the first rate hike.
Consumer price inflation in the United States hit a 13-year high of 5% last month, but Fed Chairman Jerome Powell could stick to his conciliatory view that inflationary pressures will be transient rather than persistent – especially as US job growth exceeded expectations in April and May, and retail sales fell last month.
Kyle Rodda of IG Explain :
In the short term, everything depends on the meeting of the Fed, and on what the central bank implies on its future policy. The policy settings themselves won’t change, that’s for sure. However, with the Fed releasing its economic projections and infamous dot-plots, there is keen interest in whether, at the margins, Fed board members might start to see the need. to raise rates and tighten policy.
The language of the statement will likely remain accommodating and seek to allay concerns about the rate cut and hikes. But with hints that some Fed members consider it time to at least start “thinking about” tightening policy, where those points fall can impact market prices.
Today we also get new housing data from UK and US. Global equity markets remain close to their all-time highs, while the FTSE 100 closed at nearly 16 months last night.
Yesterday’s economic data was mixed – with falling unemployment in the UK offset by a 1.3% drop in US retail sales, a drop in US carmaker confidence and an annual increase of 6 , 6% of US producer prices. It took some of the heat off Wall Street yesterday.
- 7am BST: UK inflation report for May
- 7am BST: UK producer price inflation for May
- 8am BST: fixed investment, industrial production and retail sales of China for May
- 9:30 a.m. BST: UK House Price Index for April
- 12 p.m. BST: weekly mortgage applications in the United States
- 1:30 p.m. BST: building permits and housing starts in the United States for May
- 3:30 p.m. BST: EIA weekly oil inventory figures
- 7 p.m. BST: Federal Reserve releases interest rate decision and economic projections
- 7:30 p.m. BST: Federal Reserve press conference