UK inflation hits new 40-year high of 9.1% as food and energy price increases persist

UK inflation hits new 40-year high of 9.1% as food and energy price increases persist

More than four in five people in the UK are worried about the rising cost of living and their ability to pay for basic necessities like food and energy in the coming months, according to new research.

Tolga Akmen | afp | Getty Images

LONDON – UK inflation hit 9.1% in May from a year earlier as rising food and energy prices continue to deepen 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 higher than the 9% increase recorded in April.

Consumer prices rose 0.7% month on month in May, slightly above expectations for a 0.6% rise, but well below the monthly rise of 2.5% in April, indicating that inflation is slowing somewhat.

In its communications alongside the figures on Wednesday, the UK Office for National Statistics said its estimates suggested that inflation “would have been highest around 1982, where estimates range from nearly 11% in January to approximately 6.5% in December”.

The largest upward contributions to the inflation rate came from housing and domestic services, mainly electricity, gas and other fuels, along with transport (mainly used fuels and automobiles).

The Consumer Price Index, including owner-occupier housing costs (CPIH), was 7.9% in the 12 months to May, up from 7.8% in April.

“Rising food and non-alcoholic beverage prices, compared to declines a year ago, resulted in the largest upward contribution to the change in the 12-month CPI and CPI inflation rates between April and May 2022 (0 .17 percentage points to the CPI)”, the ONS said in its report.

The Bank of England last week implemented a fifth consecutive interest rate hike, although it fell short of the aggressive hikes seen in the US and Switzerland as it seeks to tame inflation without exacerbating the current economic slowdown.

The main bank rate currently stands at 1.25%, a 13-year high, and the Bank expects CPI inflation to exceed 11% by October.

The UK energy regulator raised the domestic energy price ceiling by 54% from 1 April to accommodate a surge in wholesale energy prices, including a record rise in gas prices, and has not ruled out further increases in the ceiling in its periodic reviews this year.

cost of living crisis

Paul Craig, portfolio manager at Quilter Investors, said Wednesday’s inflation printout is a reminder of the challenges facing the central bank, government, businesses and consumers.

“Unfortunately, the cost-of-living crisis will not be a short-lived affair, and it ends up leaving the Bank of England stuck between a rock and a hard place,” Craig said.

“While the United States recognizes the need to go hard and fast on interest rates, the Bank of England continues to walk at a slower pace, trying not to push the economy into recession at a time when businesses and consumers are feeling the pinch. . “

However, he suggested that the bank’s current strategy is doing little to prevent inflation, meaning “tougher decisions are coming very soon”, with the bank already hinting at a bigger hike at its next meeting.

A recent poll showed that a quarter of Britons have switched to skipping meals as inflationary pressures and a food crisis blur into what Bank of England Governor Andrew Bailey called an “apocalyptic” outlook for consumers.

Along with external shocks facing the global economy – such as food and energy price increases amid the war in Ukraine and supply chain problems due to the lingering bottlenecks of the Covid-19 pandemic – the UK is also dealing with domestic pressures. , as the government unfolds historic pandemic-era fiscal support and the effects of Brexit.

Economists also signaled signs of tightening labor market conditions and global inflation filtering into the wider economy. The UK is currently worried about massive national rail strikes, and Nobel Prize-winning economist Christopher Pissarides told CNBC on Tuesday that the job market is “worse than it was in the 1970s”.

Quilter’s Craig suggested that the government and central bank will be watching the job market closely, and not just for indications of further strikes over wage increases delayed by inflation.

“With inflation where it is, any sign of weakness in employment will be a big red flag for the economy,” he said.

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