The UK is a rare rich country where inflation is still increasing
According to data from the Organization for Economic Co-operation and Development (OECD), the UK is the only G7 country where inflation is still rising.
The consumer price index (CPI) in May in the UK increased by 7.9% year-on-year, up slightly from 7.8% in April, according to the OECD. Meanwhile, the remaining members of the G7 including the US, Canada, France, Germany, Italy and Japan all recorded decelerating inflation.
For the G7 as a whole, inflation fell to 4.6% in May, from 5.4% in April, the lowest level since September 2021. Many major central banks have begun to consider ending rate hikes as prices cool.
Meanwhile, the Bank of England (BoE) last month raised interest rates by 50 basis points, larger than many expected. The BOE's 13th consecutive increase brings the prime rate to 5%, the highest since 2008.
The Consumer Price Index calculated by the OECD for the UK, which includes the cost of owning and living in a family, is considered the most comprehensive measure of inflation. The CPI measured by the European Statistics Agency (Eurostat) was recorded at 8.7% in May, unchanged from April.
An employee sorts products inside Sainsbury's supermarket in Richmond, London, June 27, 2022. Photo: Reuters
On July 4, British Prime Minister Rishi Sunak acknowledged that inflation was "more persistent than many expected".
Neil Shah, research director at investment research firm Edison Group, explains that the combination of the energy price crisis and labor shortage has resulted in UK inflation being much more severe than in other economies. G7. "Brexit has part of the cause, reshaping the labor market and putting pressure on employers to raise wages to attract talent," he added.
The UK's economy, which is more dependent on services than manufacturing, is a differentiator to more balanced European economies such as Germany. In the eurozone, inflation has also gradually cooled down, albeit slowly. Eurostat said that the June CPI of the euro group fell to 5.5%, falling more than expected.
According to a June survey by Citi bank and market research firm YouGov, UK public expectations for inflation over the next 12 months have increased to 5%, higher than the 4.7% in the last survey. May. The BoE is monitoring inflation expectations for fear of upward price pressure in the economy. Their goal is to bring inflation back to 2%.
Megan Greene, Member of Boe's Monetary Policy Committee recently warned that interest rates could stabilize at higher levels in the long run. "It would be a mistake if central banks were comfortable with the view that inflation and interest rates would automatically return to the lows we saw before the pandemic," she assessed.