UK inflation rate rose sharply to 2.5% in June
The inflation rate in the UK rose to 2.5% in June, far exceeding expectations, increasing the pressure on the Bank of England and requiring it to pay more attention to rising prices.
The Office of National Statistics said that the general rise last month challenged the Bank of England’s view that any increase in inflation above its 2% target will be “temporary”.
The inflation rate was higher than expected for the third consecutive month — climbing from 0.4% in February — indicating that companies have responded to the relaxation of coronavirus restrictions in an effort to build profit margins.
Economists had expected the inflation rate to rise to 2.2% from 2.1% in May. The National Bureau of Statistics of the United Kingdom stated that the consumer price index for most goods and services has risen sharply, with prices rising by 0.5% in June alone.
Jonathan Athow, deputy national statistician at the National Bureau of Statistics of the United Kingdom, said: “The increase is common, for example from rising food and used car prices, and reportedly increased demand.”
Measured by the consumer price index, UK inflation in June was at its highest level since August 2018.
The Bank of England predicts that the inflation rate will reach a peak of around 3% in late 2021. After the rapid price increase in the second quarter, autumn prices will rise further because of the temporary abolition of the low value-added tax rate for the hotel industry.
These increases will put pressure on the Bank of England’s view that the price spike is temporary.
Capital Economics chief British economist Paul Dales (Paul Dales) said that if prices simply return to normal after the pandemic, the price increase will be even greater. He said this “means that real price inflation is also happening.”
Dales added that inflation may increase to 4% by the end of this year, but he also agrees that inflation may slow in 2022, which allows the Bank of England to keep tightening during a disturbing period and adopt an unusually loose currency. policy.
Used car prices are listed by the UK’s National Bureau of Statistics as a driving factor for this year’s inflation. Just like in the United States, buyers seek used cars as a substitute for new cars, and car production has been hit hard. Global semiconductor shortage.
The National Bureau of Statistics of the United Kingdom said that some price increases have temporary factors, such as the increase in gas station costs related to the increase in commodity prices, and some prices have returned to normal levels after temporary price cuts during the pandemic.
Although most economists believe that the Bank of England will be tough to deal with rising inflation, James Sproule, chief economist at Handelsbanken in the United Kingdom, said that the Bank of England’s Monetary Policy Committee should consider how stubborn it is to underestimate the increase in inflation this year.
“It is important to remember that just in February of this year, the annual inflation rate was 0.4%, and there were discussions about negative interest rates-all this is long gone and forgotten,” Sproule said, adding that the MPC needs to pay more attention to rising inflation .
He added: “At least this fall should be considered starting to withdraw from the quantitative easing program, and the diversity of opinions on the Monetary Policy Committee needs to be preserved.”