UK inflation rate soars to nearly 3-year high in June

DM Monitoirng

LONDON: Britain’s Consumer Prices Index (CPI) rose by 2.5 percent in the 12 months to June 2021, the highest level since August 2018, the British Office for National Statistics (ONS) said.
June’s 2.5 percent of annual growth rate, up from 2.1 percent to May, marked the second successive month above the Bank of England’s 2 percent target for inflation.
Meanwhile, the CPI including owner occupiers’ housing costs (CPIH) 12-month inflation rate rose by 2.4 percent in the 12 months to June 2021, up from 2.1 percent in the 12 months to May, said the ONS. The largest upward contribution to the CPIH 12-month inflation rate came from transport, said the official body, adding it was driven principally by second-hand cars and motor fuels.
“CPI inflation continued to accelerate in June, reaching a 34-month high of 2.5 percent,” said Martin Beck, senior economic advisor to the EY ITEM Club, an economics forecasting group in Britain.
Beck said he believes around half of the pickup between May and June was due to “higher petrol and food prices, the latter being largely a function of base effects after a soft reading last June.”
Kate Nicholls, chief executive for UKHospitality, a British trade association representing the interests of hospitality sector, said inflation is continuing to creep up and likely to hit peak of 3 percent, adding it is “not as high as post other crises and largely driven by bottlenecks of lockdown and arithmetic effects of lockdown but will see cost price inflation in hospitality.”
Independent economist Julian Jessop said he believes that some upward pressures on the inflation “will be transitory, but even these are proving larger and longer-lasting than expected.” “The MPC (Monetary Policy Committee, the Bank of England) has already conceded that inflation is ‘likely to exceed 3 percent for a temporary period’, and is banking on this being ‘transitory’…but I’m expecting 4-5 percent, with more persistence,” he said.
Last month, the Bank of England, Britain’s central bank, announced an unchanged interest rate at 0.1 percent, despite prediction of inflation being temporarily above its 2 percent target in the months ahead.
The bank projected the CPI inflation is likely to exceed 3 percent for a temporary period, mainly due to developments in energy and other commodity prices.
“As these transitory effects faded, conditioned on the market path for interest rates, inflation was expected to return to around 2 percent in the medium term,” said the central bank.