UK CPI: No country is an island

Annualised inflation came in at 3.4% in May, down from the 3.5% reported in April.

Annualised inflation was forecast to come in at 3.4% and core Inflation came in at 3.5% in the 12 months to May, down from the 3.8% in April and lower than forecast.

Nicholas Hyett, Investment Manager, Wealth Club said, “Higher food and drinks costs offset most of the easing in inflation from other sources  – with the annual increase in food and drink prices rising from 3.4% in April to 4.4% in May. The net result is that UK inflation remains high, and far higher than elsewhere in Europe.

That is unwelcome but not unexpected. The hope was that price increase would slowly roll off over the course of the next 12 months as we annualise things like council tax hikes and the effect of April’s higher labour costs. The turmoil in the Middle East has upset that.

The price of Brent crude has moved sharply higher despite key global oil routes remaining largely unaffected so far, and the conflict has the potential to disrupt global energy flows much more severely than it has so far. As a key input into pretty much everything, a spike in oil would drive up prices across the board. The inflationary risk from the Middle East, combined with already rising prices, could change the calculus for the Bank of England and make rate cuts that bit less likely.

It’s often said that no man is an island. When it comes to inflation, it seems no country is either  – even those surrounded by water.”