UK Headline Inflation Keeps Things Hot In May

 

- Consumer prices tick up again

- Factory output prices positive for 17th straight month

- Pipeline inflation rises at its fastest rate in 45 years

- Latest data in line with BoE forecasts

 

By Harry Daniels

LiveSquawk News

@HarryDaniels71

 

22 June 2022 | 12:30 GMT

 

 

LONDON – The cost of living across the British Isles remained high last month but left hope that the rate of acceleration was slowing.

 

Annual consumer price growth rose an in-line 9.1% in May, one-tenth higher than April’s reading. On the month, CPI increased 0.7% to also match estimates but come in sharply lower than the 2.5% in April.  The annual core reading of 5.9% was slightly lower than 6.0% forecast and the 6.2% in the previous month.

 

Office for National Statistics chief economist Grant Fitzner said, “Continued steep food price rises and record high petrol prices were offset by clothing costs rising by less than this time last year and a drop in often fluctuating computer games prices.”

 

Analysts noted that the slip in the annual rate of core inflation came courtesy of the goods side, which saw moderation from 8.0% to 7.2% year-on-year. The annual base effect was noted as the cause of the 4.9% rise in services inflation (4.7% in April).

 

Pipeline inflation still scorching

Annual PPI output prices in May increased in line with estimates to 15.7% to beat the 14.7% estimate, which was also the print in April. Output prices grew 1.6% month-on-month, 0.1 percentage points above the 1.5% forecast but down from a revised 2.8% previously.

 

In the year to May, PPI input prices grew a lofty 22.1% versus the 19.4% forecast and the upwardly revised 20.9% in the prior month. On the month, prices increased 2.1% versus the 1.8% forecast and revised 2.7% prior.

 

“The price of goods leaving factories rose at their fastest rate in 45 years, driven by widespread food price rises, while the cost of raw materials leapt at their fastest rate on record,” Fitzner reported.

 

Inflation resilience

Chris Hare, senior economist at HSBC noted that the May inflation data continued to point to broad-based strength. “Even though the annual core CPI rate softened, the month-on-month core rate came in 0.3 ppts above its long-run average, broadly in line with trends seen over the past six months or so. Underlying momentum would have been a little stronger than that, were it not for the softening in volatile computer game prices. In other words, underlying inflation is not showing any sign of softening yet.”

 

Despite ongoing strength, Wednesday’s figures are broadly in line with the most recent forecasts from the Bank of England. “We think they are unlikely to be enough to make the MPC shake off its status as a dovish outlier among central banks,” Hare added.

 

Investec’s Sandra Horsfield posited that the BoE may retain some optimism from the fact that core price pressures are subsiding, at least for now. “However, with headline price pressures still intensifying, the bigger threat of a disanchoring of inflation expectations, and of wage settlements that ultimately add further to cost pressures, continues to loom large. We, therefore, doubt this slight easing in core price pressures will be enough to avert further rate rises in the coming months.”

 

Source: HSBC
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