UK inflation indicates that the Bank of England is moving too slow
Consumer inflation continues to gain momentum in the UK. Data for May showed that CPI accelerated to 9.1% y/y - a record among the G7 and a 40-year high. The monthly price growth rate was 0.7% compared to 2.5% and 1.1% in the previous two months. However, apart from the reversal to lower base commodity and energy prices in the last couple of weeks, there is little indication that the Bank of England can relax. Moreover, it needs to double the pace of the rate increase from 25 points at once.
Last month producer input prices rose by 2.1% and output prices by 1.6%, reaching an annual rate of 22% and 15.6%, respectively. Under these conditions, producers and retailers will continue to pass increasing costs down to consumers. Unlike in the early years after the financial crisis, retail sales and employment are strong, which allows such a shift of rising outlays to end consumers.
