Daily Market Report - 22/06/2022
UK inflation rises to 40 year high
The Pound fell in the immediate aftermath of the release of the UK inflation data this morning; as it was announced that it has now risen to 9.1%, the highest rate in 40 years as a result of the soaring cost of food and record prices for petrol and diesel. The figures from the Office for National Statistics showed that inflation, as measured by the consumer price index, hit its highest level since March 1982, adding to the strain on households, especially those on lower incomes.
The ONS said the main contribution came from food and non-alcoholic drink prices rising at the fastest annual rate since 2009. Bread, cereals and meat in particular became more expensive, while fruit prices were little changed last month.
Record prices for petrol and diesel also drove inflation higher as motor fuels jumped by nearly one third over the past year, the biggest annual increase on records dating back to 1989.
Last week the B.O.E warned inflation was on course to reach 11% later this year as gas and electricity prices soar.
When we examine core inflation, which removes external factors like commodity and fuel costs on a global scale, we can detect signs that inflation may be reaching a peak.
Core CPI increased 5.9% year-on-year in May, coming in below market expectations for 6 percent and below April's 6.2%. The month-on-month core reading was 0.5%, below both the prior reading of 0.7% and the consensus forecast of 0.7%.
A stronger than expected reading would have further cemented growing expectations for a 50bp rate hike at the Bank of England in August.
Some economists suggest the headline numbers won’t prevent the Bank of England from raising interest rates further, but crucially, it could encourage it to opt again for a 25bps rate hike at its next meeting in August rather than upping the ante with a 50bps hike.