LONDON – British inflation unexpectedly jumped above the Bank of England’s target in May when it hit 2.1%, part of a post-lock price hike that is expected to pick up the pace.
The acceleration in the consumer price index from 1.5% in April largely reflected weak inflation in May 2020, when the economy was reeling from its first tight shutdown.
The figure represents the first time inflation has exceeded the Bank of England’s 2% target in nearly two years and was above 33 forecasts in a Reuters poll of economists that pointed to inflation rising to 1.8. %.
Yields on British government bonds rose early Wednesday and yields on two-year government bonds, which are sensitive to speculation about the Bank of England’s policy moves, briefly hit their highest level at nearly a year. month.
Investors around the world are evaluating the risks of a sustained rise in prices, especially in the United States, where annual inflation reached 5.0% in May, the highest in nearly 13 years, and where President Joe Biden proposed a $ 6 trillion stimulus package.
“Today’s inflation rate was much stronger than anticipated and confirms that as the UK economy moves into its reopening, inflationary pressures continue to mount,” said Ambrose Crofton, Global Market Strategist at JP Morgan Asset Management .
CPI data showed that fuel prices in May were nearly 18% higher than the previous year, while clothing and footwear costs rose 2.1% as people came out of isolation and new equipment was bought.
Price data was collected around May 11, before pubs and restaurants were allowed to serve customers indoors and cinemas and hotels reopened as of May 17.
“All eyes now turn to the Bank of England meeting next Thursday for an indication of how and when it plans to start on the path to more normal politics,” Crofton said.
The Bank of England has said it expects inflation to hit 2.5% by the end of this year before returning to its 2% target as the impact of post-lock energy price increases fades along. with other cost pressures, such as bottlenecks in supply chains.
Sudden increases in inflation since the 2008 financial crisis proved temporary, as the labor market was too weak to create the kind of price and wage spirals that occurred in the 1970s.
The central bank is expected to leave the policy unchanged on June 24 after its last meeting.
SIX MONTH MARCH
Jack Leslie, an economist at the Resolution Foundation think tank, said that accelerating price growth from 0.3% in November to 2.1% in May represented the fastest rise in six months since the British pound collapsed after the fall. 2008-09 financial crisis.
“But UK inflationary pressures are different, and nowhere near as great, as those causing fierce debate in America,” Leslie said.
The British pound rose slightly after the ONS figures.
Core inflation, which excludes the price of food, energy and other volatile items, rose to 2.0% in the 12 months through May, the National Statistics Office said.
While Bank of England Governor Andrew Bailey and most of his colleagues say the rise in inflation will be temporary, Chief Economist Andy Haldane said last week that the central bank faced the “most dangerous moment” since the crisis of the European exchange rate mechanism in 1992.
There were signs of increased price pressure in Wednesday’s data.
Prices paid by manufacturers for their inputs increased 10.7% in the 12 months to May, the highest since September 2011, and the prices they charged increased 4.6%, the largest increase since January 2012. (Report by William Schomberg and David Milliken; edited by Giles Elgood)