Consumer Price Inflation (CPI) in the UK was 8.7% in May 2023
buayaberdiri.blogspot.com - Inflation is one of the most important economic indicators that affects the lives of millions of people. It measures how much the prices of goods and services have changed over time. A high rate of inflation means that the purchasing power of money is eroding, making it harder for people to afford their basic needs.
The UK has been facing a severe inflation problem since late 2021, when the global economy was hit by a series of shocks, such as the Covid-19 pandemic, supply chain disruptions, energy shortages and geopolitical tensions. These shocks caused a surge in demand for certain goods and services, while also reducing the supply and increasing the costs of production. As a result, prices rose sharply across various sectors, such as food, energy, transport, housing and health care.
According to the latest data from the Office for National Statistics (ONS), consumer price inflation (CPI) in the UK was 8.7% in May 2023, unchanged from April and well above the Bank of England's (BoE) target of 2%. This was the highest annual inflation rate since November 1991. The main drivers of inflation in May were electricity and gas prices, which rose by 28.5% and 26.6% respectively over the year, reflecting the impact of higher wholesale energy costs and regulatory changes. Other significant contributors were food prices, which increased by 12.4% over the year, and transport costs, which rose by 11.9%, mainly due to higher fuel prices.
The BoE has been trying to contain inflation by raising interest rates repeatedly since December 2021, when it started its tightening cycle from a record low of 0.1%. On June 22, 2023, the BoE surprised markets by hiking rates by 0.5 percentage points to 5%, the highest level since early 2008. This was a larger-than-expected move, as most analysts had forecast a 0.25 percentage point increase. The BoE said that it decided to raise rates more aggressively because inflation was still too high and showed more persistence than expected, especially in wages and services sectors. The BoE also warned that inflation could rise further in the coming months, before peaking at around 10% later this year.
The BoE's rate hikes have been aimed at cooling down the economy and reducing inflationary pressures by making borrowing more expensive and saving more attractive. However, they also have negative consequences for households and businesses that are already struggling with higher living costs and lower incomes. Higher interest rates mean higher mortgage payments for homeowners, higher loan repayments for borrowers and lower profits for firms. They also tend to appreciate the exchange rate of the pound sterling, which makes exports more expensive and imports cheaper, hurting domestic producers and reducing external demand.
The UK's inflation outlook remains uncertain and depends on several factors, such as the evolution of the Covid-19 pandemic and its variants, the pace of global economic recovery and trade relations, the availability and affordability of energy supplies, the behaviour of consumers and firms, and the policy actions of the BoE and other authorities. The BoE expects inflation to start falling gradually from early 2024 onwards, as some of the temporary factors that have boosted prices fade away and as its monetary policy measures take effect. However, it also acknowledges that there are significant risks to this scenario, both on the upside and on the downside.
Inflation is a complex phenomenon that has multiple causes and effects. It is important for policymakers to monitor it closely and respond appropriately to ensure price stability and economic growth. It is also important for consumers and businesses to understand it and adapt their expectations and decisions accordingly.