LONDON – UK households continue to endure elevated costs pressures as the Office for National Statistics reported that the average price of a basket of goods remained steady last month, contrary to predictions of a larger decline.
Annual inflation rose 8.7% in May unchanged from April and higher than the 8.4% estimate. On the month, CPI increased 0.7%, two-tenths higher than consensus but lower than the 1.2% rise in the previous month. The annual core rate also rose unexpectedly to 7.1% versus the 6.8% forecast and last month.
“After last month’s fall, annual inflation was little changed in May and remains at a historically high level,” ONS Chief Economist Grant Fitzner said. “The cost of airfares rose by more than a year ago and is at a higher level than usual for May. Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high.”
Statisticians reported a fall in the cost of petrol and although still high, there was a softening of food price inflation. Food and non-alcoholic beverage prices rose by 18.4% in the year to May, down from 19.1% last month and from 19.2% in March, which was the highest annual rate seen for over 45 years.
Morgan Stanley’s Bruna Skarica said, “All in all, while the ONS flagged that some of the main contributors to today's print were volatile categories – live music fees and computer games, to name a few – in reality, the pressures look broad based.”
Factory gate prices
Annual PPI output prices in May rose 2.9% well below the median 3.6% estimate and down markedly from April’s 5.2% print. This represented the lowest annual rate since March 2021. Output prices fell 0.5% month-on-month, versus the -0.1% forecast and downwardly revised -0.2% read previously.
In the year to March, PPI input prices rose 0.5%, a decrease of 3.7 percentage points from April, missing the 1.2% forecast. On the month, prices plunged 1.5% versus expectations of a 0.5% decline and last month’s 0.1% print.
The ONS said this was the biggest monthly decrease since April 2020 and is notably down from the record monthly increase of 5.1% in April last year.
Is a forceful hike on the table?
“While there is a case to be made for a forceful approach, with the overshoot still this sizeable, we think that the Monetary Policy Committee would find it challenging to communicate a view on a (sharply) higher terminal rate with no fresh forecasts,” Skarica remarked. “In addition, April and May data are fairly volatile, given the usual price resets at the start of the fiscal year.”
Nomura’s George Buckley posited that all told, this was yet another stronger-than-expected set of inflation prints. “We and the market are looking for a 25 basis point [hike for Thursday's] Bank of England announcement (the decision will be made by the MPC on Wednesday), but the continuation of strong wage and price prints out of the UK suggests that 50bp will be firmly on the table.”
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- Annual headline consumer prices remain above target
- Rising airfares offset by drop in cost of petrol
- Slowing factory gate inflation offers up hope - analysts
- MPC expected to follow through with forceful hike
By Harry Daniels
LiveSquawk News
@HarryDaniels71
21 June 2023 | 11:00 GMT
LONDON – UK households continue to endure elevated costs pressures as the Office for National Statistics reported that the average price of a basket of goods remained steady last month, contrary to predictions of a larger decline.
Annual inflation rose 8.7% in May unchanged from April and higher than the 8.4% estimate. On the month, CPI increased 0.7%, two-tenths higher than consensus but lower than the 1.2% rise in the previous month. The annual core rate also rose unexpectedly to 7.1% versus the 6.8% forecast and last month.
“After last month’s fall, annual inflation was little changed in May and remains at a historically high level,” ONS Chief Economist Grant Fitzner said. “The cost of airfares rose by more than a year ago and is at a higher level than usual for May. Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high.”
Statisticians reported a fall in the cost of petrol and although still high, there was a softening of food price inflation. Food and non-alcoholic beverage prices rose by 18.4% in the year to May, down from 19.1% last month and from 19.2% in March, which was the highest annual rate seen for over 45 years.
Morgan Stanley’s Bruna Skarica said, “All in all, while the ONS flagged that some of the main contributors to today's print were volatile categories – live music fees and computer games, to name a few – in reality, the pressures look broad based.”
Annual PPI output prices in May rose 2.9% well below the median 3.6% estimate and down markedly from April’s 5.2% print. This represented the lowest annual rate since March 2021. Output prices fell 0.5% month-on-month, versus the -0.1% forecast and downwardly revised -0.2% read previously.
In the year to March, PPI input prices rose 0.5%, a decrease of 3.7 percentage points from April, missing the 1.2% forecast. On the month, prices plunged 1.5% versus expectations of a 0.5% decline and last month’s 0.1% print.
The ONS said this was the biggest monthly decrease since April 2020 and is notably down from the record monthly increase of 5.1% in April last year.
“While there is a case to be made for a forceful approach, with the overshoot still this sizeable, we think that the Monetary Policy Committee would find it challenging to communicate a view on a (sharply) higher terminal rate with no fresh forecasts,” Skarica remarked. “In addition, April and May data are fairly volatile, given the usual price resets at the start of the fiscal year.”
Nomura’s George Buckley posited that all told, this was yet another stronger-than-expected set of inflation prints. “We and the market are looking for a 25 basis point [hike for Thursday's] Bank of England announcement (the decision will be made by the MPC on Wednesday), but the continuation of strong wage and price prints out of the UK suggests that 50bp will be firmly on the table.”