The UK saw the biggest increase in annual inflation on record last month, as global supply shortages and rising wages amplified the scale of price increases after pandemic-related discounts it a year ago
LONDON – UK consumer prices rose at their fastest pace recorded in August, as global supply shortages and rising wages accentuated the surge in discounts linked to the pandemic a year ago , according to official figures released Wednesday.
The Office for National Statistics said inflation accelerated to 3.2% in the year through August, from 2% the month before. The magnitude of the month-over-month increase was the largest since the introduction of the CPI measure of inflation a quarter of a century ago.
The spike brings inflation well above the Bank of England’s 2% target, and is likely to put pressure on policymakers to soon consider raising interest rates by compared to their lowest records.
The increase was slightly larger than expected in financial markets, with most economists predicting a peak of 3%.
Because inflation has risen more than a percentage point above the Bank of England’s target, its Governor Andrew Bailey will have to write a letter to Treasury Chief Rishi Sunak explaining what’s going on .
Bailey is generally expected to say that much of the increase is due to temporary factors related to the pandemic. Over the past decade, the central bank has tolerated above-target inflation on the condition that it believes the underlying reasons for the increase were transitory.
After all, restaurant prices were a major reason for August’s spike, as last year the government offered meal discounts through its Eat Out to Help Out program in an effort to bolster the economy in following the first national lockdown.
There were other reasons behind the increase, including the sharp rise in energy prices as the global economy recovers from the initial shock of the pandemic. This impact on inflation is felt all over the world.
A recovery in demand after the easing of lockdown restrictions, higher wages, global supply chain issues, a lack of drivers to transport goods and price hikes linked to Britain’s departure from the European Union also contributed to the rise.
Economists have said inflation is expected to peak at a higher level than previously thought, possibly beyond 4%, although much depends on the trajectory of the pandemic over the winter. .
As a result, many believe the Bank of England could halt its program of asset buying in financial markets at the end of this year and raise its main interest rate from a record low of 0.1% as soon as possible. the first half of 2022.
“The data appears consistent with the Bank of England’s expectations of a slight tightening in the coming years,” said Debapratim De, senior economist at Deloitte. “If growth in the UK continues as expected, we will likely see the first rate hike by next summer.”