The UK’s inflation rate hit another 40-year high in May, reaching 9.1 per cent, amid rising food and fuel prices.
The price growth in May, up from 9 per cent in April, was in line with economists’ expectations. They are predicting inflation will hit double digits by the autumn.
The Bank of England expects the inflation rate to exceed 11 per cent in October, significantly higher than other similar countries in the G7.
The rise in inflation will add to cost of living pressure on households, intensify demands for wage rises to offset higher prices and make it more difficult to resolve industrial disputes such as this week’s rail strike.
Echoing the language used by the US Federal Reserve when talking to reporters, chancellor Rishi Sunak said: “I want people to be reassured that we have all the tools we need and the determination to reduce inflation and bring it back down.”
He earlier said: “We can build a stronger economy through independent monetary policy, responsible fiscal policy, which doesn’t add to inflationary pressures and by boosting our long-term productivity and growth.”
The task of reducing inflation will be more difficult, Bank of England officials have noted over the past week, because they think price rises well over the 2 per cent inflation target are now embedded into corporate pricing policies and wage settlement.
In May, prices rose at high rates across a broad group of categories. For a quarter of all individual items measured by the Office for National Statistics, prices were 10 per cent higher than last May, and for half of the categories measured, they rose by 7 per cent or more.
The biggest contributor to the increase in inflation came from food prices, which increased 1.5 per cent in May, with bread, cereals and meat rising fastest.
The Office for National Statistics said that road fuel prices were 32.8 per cent higher in May than a year earlier, the largest annual jump in prices in the category since detailed indices were first compiled in 1989.
Next month, the inflation rate is likely to rise strongly again, the Resolution Foundation said, because it would take into account the recent rise in fuel prices at the pumps. In May, the average price of a litre of petrol was recorded at £1.66 and has risen about 20p a litre since then.
Yael Selfin, chief UK economist at KPMG, said there were “no signs yet of inflation receding” and that while the largest increases were in energy and road fuels, “price rises spread widely across the economy”.
Paul Dales, chief UK economist at Capital Economics, said the pattern of inflation justified further interest rate rises, but not a half-point rise at the BoE’s next meeting in August. “It is not obvious in this release that there are signs of the ‘more persistent inflationary pressures’ that last week the Bank said would prompt it to ‘act forcefully’.”
One worrying sign indicated by Grant Fitzner, ONS chief economist, however, was that price pressures were still bubbling away in factories across the UK.
“The price of goods leaving factories rose at their fastest rate in 45 years, driven by widespread food price rises, while the cost of raw materials leapt at their fastest rate on record,” he said.
In the latest figures, the retail prices index, used to calculate the uplift on index-linked bonds, rose to 11.7 per cent in May from 11.1 per cent in April, marking the highest reading for the measure since October 1981.
Source: Financial Times