UK Inflation Hits Record High
UK inflation reached 9.1% y/y in May as soaring energy and food prices continue to exacerbate the country’s cost-of-living crisis, CNBC reported. Last month, consumer prices increased by 0.7% month-on-month, way below April’s 2.5% monthly increase, showing that inflation is slowing somewhat.
4-decade record high
The UK National Statistics Office commented that inflation “would last have been higher around 1982, where estimates range from nearly 11% in January down to approximately 6.5% in December.”
Household services and housing made the biggest contributions to the inflation rate hike, mainly gas, electricity, and other fuels, along with second-hand and motor-fuel vehicles. In a report, the Office wrote:
Rising prices for food and non-alcoholic beverages, compared with falls a year ago, resulted in the largest upward contribution to the change in both the CPIH and CPI 12-month inflation rates between April and May 2022.
Bank of England made fifth interest rate hike last week
The Bank of England made the fifth hike to interest rates in a row, although they haven’t been as drastic as in the US and Switzerland. This is an effort to ease inflation without decelerating the economy even further.
Household energy price cap up 54%
On April 1, the UK’s energy regulator raised the household energy price cap by 54% to account for the increase in wholesale energy costs, including a record gas price hike. Additional cap increases are not out of the question.
In an interview with CNBC, Paul Craig, portfolio manager at Quilter Investors, pointed out that the growing inflation rate reflects the challenges facing consumers, businesses, the central bank, and the government. He said:
Disappointingly, the cost-of-living crisis is not going to be a short-lived affair, and this ultimately leaves the Bank of England stuck between a rock and a hard place. While the US has acknowledged the need to go hard and fast on interest rates, the Bank of England continues to plod along at a slower pace, trying not to tip the economy into recession at a time when businesses and consumers are feeling the pinch.
He added that the Bank’s current strategy was not preventing inflation from rising uncontrollably, which meant more difficult decisions were coming very soon. There may be another hike at the Bank’s next meeting.