The UK consumer price index (CPI) rose in July to 10.1%, compared to 9.4% the previous month, making it the highest level in more than 40 years, as reported by the Office for National Statistics (ONS, for its acronym in English). Specifically, the British CPI is at its highest rate since February 1982, when it stood at 10.4%.
The Bank of England (BoE) has already warned that prices were going to exceed 13% at the end of the year, levels that are only comparable to the 1970s, a troubled time for the country, with runaway prices, and social unrest, and a deep political crisis.
ONS Chief Economist Grant Fitzner explained that “a wide variety of prices” caused inflation to rise again last month. “Food prices increased notably, in particular bakery products, dairy products, meats, and vegetables,” said the manager, adding that the prices of other essential items, such as toothbrushes and deodorants, also increased.
Core inflation (excluding energy, food, alcohol, and tobacco) accelerated to 6.2% from a year earlier in July, compared to 5.8% in June, confirming that inflationary pressures are coming from food. According to the British Statistical Office, food and non-alcoholic beverages contributed more than three times the rate of inflation than any group of items. The ONS points to 0.32%. The second group is leisure and culture (0.1%) and the third is goods and services (0.08%).
“It looks like core inflation may have peaked, or is close to peaking, now that commodity price pressures are easing,” says James Smith, an economist at ING.
The record peak of inflation has occurred with fuel prices giving a small respite. They only registered a monthly increase of 0.1%, the lowest increase so far this year. The containment came thanks to the drop in oil prices last month.
Despite this, producer prices, which are largely determined by energy costs, maintained their annual rate above 22%. For its part, the annual rate of retail prices reached 12.3%, the highest level since March 1981.
The predictions of the Bank of England are fulfilled
The Bank of England (BoE) recently anticipated that the CPI could exceed 13% at the end of the year, a rate not seen since 1980, that is, since the last part of the deep recession experienced in the late 1970s and early 1990s. 80 for the first oil crisis. And it was just his base scenario. In the most negative forecasts, inflation can reach 15%.
The outlook for the UK is very bleak. Not only because of inflation but also because of growth prospects. According to the BoE, the economy will go through a long recession of five quarters that will begin at the end of the year, with special mention to the loss of purchasing power of wages.
The harsh conditions are reminiscent of when Margaret Thatcher’s government fought to control prices, despite social protests. With a permanent political crisis since Brexit, the responsibility now falls on the BoE. The central bank did not hide in its latest report to point out that it will cause, with the rate hike, a recession to curb inflation.
The Iron Lady picked up a country punished and tired by the oil crises of the seventies. The United Kingdom was hit with particular virulence because it also experienced the collapse of the coal industry. Stagflation was rampant, while wages added fire to the situation.
The situation is not the same, but it is similar. The Tories are seeking to replace Boris Johnson as Prime Minister as the economic crisis picks up speed. However, the behavior of wages remains contained. “Increasing inflation is really putting pressure on real wages, even with strong wage growth,” said Mike Bell, global market strategist at JP Morgan Asset Management. “And with energy bills going up in October, it’s only going to get worse,” he adds.
“Now that inflation is more than five times the Bank of England’s target, the question is not if the central bank will tighten measures, but by how much. Today’s reading makes it more likely that the BoE will raise rates by 50 basis points in September: our baseline before the data release was for a movement of 25 basis points,” comments Ana Luis Andrade of Bloomberg Economics.
Inflation stops tightening in the US
The United Kingdom has today joined the club of inflation above 10%. Spain, Portugal, Cyprus, Greece, Slovakia, and the Baltic countries are some of those burned by rising prices. But elsewhere, such as the United States, inflationary pressures are beginning to show signs of exhaustion.
Last week’s data, corresponding to the month of July, reveals that the US CPI stood at 8.5% year-on-year, six tenths below June (9.1%) thanks to the drop in oil prices and fuels.
For months, some experts, such as the Bank of Spain, maintained that inflation was going to suffer cuts in the second part of the year. Even if it is only due to a statistical effect on energy prices, it should allow falls in the annual rate. Food prices are also registering sustained declines, along with other raw materials.
The market discounts that inflation will subside , although there is still uncertainty about how Russia will manage the invasion of Ukraine and its oil and gas supplies. Russian President Vladimir Putin still holds the key to price developments in Europe.