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The British inflation rate rose to 2.5% in June, far exceeding expectations and increasing pressure on the Bank of England to take price increases more seriously.
The increase was widespread last month, the National Statistics Office said, challenging the BoE’s view that any increase in inflation above its 2% target would be “transitory”.
The third consecutive month of higher-than-expected inflation, which rose 0.4% in February, indicates that companies have responded to the easing of coronavirus restrictions with efforts to build profit margins.
Economists had expected the inflation rate to rise from 2.1% in May to 2.2%. The ONS said the strongest increase in the consumer price index was based on most goods and services, and that prices jumped 0.5% in June alone.
Jonathan Athow, the deputy national statistician of the ONS, said: “The rise was widespread, for example, due to rising prices for food and used cars where there are reports of rising prices. the demand “.
Measured by the consumer price index, UK inflation was at its highest level in June since August 2018.
With the BoE forecasting that inflation would peak at 3% later in 2021, the rapid rise in prices in the second quarter will be followed by more in the autumn, when value tax rates are temporarily eliminated. added to the hospitality industry.
These increases will put pressure on the BoE’s view that the price rise is temporary.
Paul Dales, chief UK economist at Capital Economics, said the rise in prices was greater than it would have been if they had simply returned to normal after the pandemic. That, he said, “means that there is also real price inflation.”
Inflation is likely to grow to 4% by the end of the year, Dales added, but he also agreed that inflation is likely to moderate in 2022, which will allow the BoE to stay strong with an exceptionally weak monetary policy for a while. awkward period.
Second-hand car prices were pointed to by the ONS as the engine of inflation this year, as in the US, with buyers looking for used cars as an alternative to the new, while car production had been severely affected. by global shortage of semiconductors.
The ONS said some of the price rises had temporary elements, such as rising petrol pump costs, related to rising commodity prices and some prices returning to normal after temporary price cuts during the pandemic.
While most economists share the view that the BoE will resist rising inflation, James Sproule, chief economist at Handelsbanken in the UK, said the BoE’s Monetary Policy Committee should consider persistence who had underestimated rising inflation this year.
“It’s important to remember that in February of this year alone, inflation was 0.4% a year and there was talk of negative interest rates, already gone and forgotten,” said Sproule, who added that there was a need for MPC will be taken more seriously by rising inflation.
“At least the development of the quantitative achievement program should be considered at least this fall and the diversity of views on the MPC needs to be preserved,” he added.
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