United Kingdom: Inflation comes in at series high in June
July 20, 2022
Consumer prices rose 0.80% over the previous month in June, picking up from May's 0.65% rise. The reading was driven by rising price pressures for transportation.
Inflation ticked up to 9.4% in June, following May’s 9.1%. June's reading was the highest in the current inflation series, which began in 1997. Annual average inflation rose to 5.8% in June (May: 5.2%). Lastly, core inflation edged down to 5.8% in June, from May’s 5.9%.
Inflation is expected to stay well above the Bank of England’s 2.0% target in the coming quarters, due to higher energy and food prices, the weak pound, the rise in VAT on the hospitality sector from April, low unemployment and Brexit-related trade frictions. Moreover, Ofgem is likely to increase the energy price cap substantially from 1 October in response to elevated wholesale gas prices.
Giving their view on the inflation outlook, analysts at Goldman Sachs said:
“We think core inflation has peaked at 6.2%yoy in April and look for a gradual decline over the next few quarters, but we revised up our peak headline inflation forecast to 12.5%yoy in October. Our higher inflation projection is driven by a boost to our assumption for the Ofgem energy price cap increase in October to 54% (vs 42% previously), and we pencilled in a further 3.5% increase in January.[…] Beyond the near term, given the firm wage growth outlook, we continue to expect core inflation to remain notably above target throughout 2023.”