UK inflation hits 40-year high

Thursday, Jun 23, 2022

LONDON: British annual inflation has hit a fresh 40-year high, official data showed Wednesday, further eroding workers' wages and pressuring the Bank of England to keep on raising interest rates.

The rate edged higher to 9.1 percent in May from 9.0 percent in April, remaining at the highest level since 1982, the Office for National Statistics (ONS) said in a statement.

UK inflation is set to top 11 percent before the end of the year according to the Bank of England, fuelled by soaring energy prices that have raised the prospect of a global recession.

UK inflation increased in May on "continued steep food price rises and record high petrol prices", said ONS chief economist Grant Fitzner. This was offset by clothing costs rising by less than a year earlier and a drop in prices of computer games, he added. Decades-high inflation is causing a cost-of-living crisis. "The further increase in Consumer Prices Index inflation to 9.1 percent underscores the severe pressure that businesses and households are under," said David Bharier, head of research at the British Chambers of Commerce.

"This inflationary surge sits alongside a poor economic outlook and unless the government acts with urgency to encourage businesses to invest, the chances of a recession will only increase."

Countries around the world are being hit by soaring inflation as the Ukraine war and the easing of Covid restrictions fuel energy and food price hikes. That has forced central banks to hike interest rates, risking the prospect of recession as higher borrowing costs hit investment and consumers further in the pocket.

Meanwhile, Canadian inflation jumped to 7.7 percent in May, marking the largest annual increase in prices for goods and services in almost four decades, the government statistical agency said Wednesday.

The figure topped even the most bullish forecasts, following a 6.8 percent rise in prices the previous month. The price increases, Statistics Canada said in a statement, were "broad-based, pinching the pocketbooks of Canadians and in some cases affecting their ability to meet day-to-day expenses."

Desjardins analyst Royce Mendes reacted by saying the agency "really should add a warning label to these scorching hot inflation prints." "We had expected stronger price increases than the consensus, but this is very surprising," he said in a research note, warning that a "jumbo-sized" interest rate hike by the Bank of Canada is now likely coming.

According to Statistics Canada, gasoline led the rise in prices, up 48 percent in the 12 months to May 31. Groceries also cost more (up 9.7 percent) due to supply chain disruptions as well as higher transportation and input costs.

Cooking oil notably recorded its largest price increase ever. Costs of fresh vegetables such as onions, peppers and carrots, as well as fish also rose. Shelter and furniture costs were up too, along with prices for hotel rooms and restaurant meals, reflecting higher demand for travel following the lifting of most pandemic public health measures.

South Africa's consumer prices rose to a five-year high in May, exceeding the central bank's stated target, official data showed. Annual inflation accelerated to 6.5 percent last month after hitting 5.9 percent in April, marking the highest reading since January 2017, according to the government's statistics agency.

The central bank of Africa's most industrialised power had sought to keep inflation within a range of three to six percent. The financial institution has raised its benchmark interest rate several times in recent months in efforts to tame rising prices.

As elsewhere in the world, the war in Ukraine has exacerbated the phenomenon, sending fuel and food prices soaring. Excluding energy and food, core inflation also rose to 4.1 percent in May from a year earlier, up from 3.9 percent in April.