• UK CPI inflation has risen to 2.1% up from 1.5% last month (ONS figures)
• Inflation is coming from a “reopening” surge as people flocked to refresh their wardrobes and indoor hospitality and leisure pulled in consumers.
• Fuel prices have continued to exert upward pressure on inflation
Danni Hewson, financial analyst at AJ Bell, comments:
“Whilst the scale of the jump might cause a little wince from some quarters today no one expected inflation wouldn’t rise in May. With restrictions easing and people excited to dip into their pent-up savings and embrace old lifestyles it was a recipe designed to heat up the economy. And some price hikes come off the back of huge falls a year ago; compare the cost of a litre of petrol when most of us were stuck at home (£127.2 vs £106.2) and that plays nicely into the “this is a transitory issue” conversation.
“As zoom calls were ditched in favour of face to face meetings there was certainly a good excuse for people to refresh their wardrobes, certainly the bottom half. After months of discounts, retailers had a captivated market and made the most of it - clothing and footwear costs were up 2.3% from the month earlier. Pubs and restaurants continued to pull in customers, particularly after restrictions on indoor socialising were eased and with tables at a premium, prices were too. Plus, it seemed many wanted a new soundtrack for this new phase and that sound of music cost a bit more in part because new releases came on stream.
“2.1% is a significant figure as it does push inflation above the Bank of England’s 2% target for the first time in almost two years. Whether the delay in reopening eases some of the pressure or whether lack of supply continues to ramp up prices will be something to watch. What is clear is there is mounting pressure in the supply chain, something reflected by more big increases in producer price inflation. With shipping costs soaring, commodity prices increasing and the shortage in semiconductors expected to continue into next year, the pressure isn’t expected to be released in the short term.
“The temperature has risen; not as fast or as far as in the US but still significantly. Central bankers will be feeling the heat but aren’t expected to put out any fires quite yet. Getting those economic engines up to speed requires time, the trick will be making sure the brakes are engaged before we hit the bend.”
