Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Inflation across the UK has risen over the Bank of England’s target for the first time in almost two years, as the cost of fuel, clothing and eating out jumped as the economy emerged from the Covid-19 lockdown.
The UK consumer price index jumped to 2.1% in May, compared with a year ago, sharply higher than April’s 1.5%, data just released shows.
That’s the highest CPI reading since July 2019, and higher than the 1.8% which economists expected – and slightly above the BoE’s goal of 2% inflation.
The Office for National Statistics says that transport made the largest upward contribution to inflation over the last year, with rising petrol prices hitting motorists at the pumps.
Rising prices for clothing, recreational goods such as games and recording media, and meals and drinks consumed out also pushed up the cost of living, compared to May 2020 when the UK was in lockdown. CPI rose by 0.6% in May alone.
But food and non-alcoholic beverages has a downward impact on inflation, as prices fell this year but rose a year ago, particularly for bread and cereals.
Core inflation, which excludes the price of food, energy and other volatile items, rose to 2.0% in the 12 months to May, the Office for National Statistics said.
The data may fuel concerns that inflation will run over the Bank of England’s 2% target for longer than expected.
Last week, the BoE’s chief economist Andy Haldane said Britain was at a dangerous moment, with “some pretty punchy pressures on prices” and the risk that wages and prices begin “a game of leapfrog”, leading to a wage-price spiral (although not on the scale of the 1970s and 80s).
More to follow…
Also coming up today
Inflation will be high on the agenda in Washington today, where US Federal Reserve policymakers are holding its monetary policy meeting. The Federal Open Market Committee could signal to Wall Street (and beyond) that it is considering slowing the speed of its bond-buying stimulus programme, given the pick-up in growth and prices recently.
The FOMC will also release new economic forecasts, while investors will be poring over its updated ‘dot plots’ which show where members expect interest rates to be over time. This could bring forward the likely date of the first rate hike.
US consumer price inflation hit a 13-year high of 5% last month, but Fed chair Jerome Powell may stick to his dovish view that inflationary pressures will be transitory, rather than sticky – especially as US jobs growth missed expectations in April and May, and retail sales dipped last month.
Kyle Rodda of IG explains:
In the short-term, everything hinges on the Fed meeting, and what the central bank implies about its future policy. Policy settings themselves will not change, that’s for certain. However, with the Fed publishing its economic projections and famous dot-plots, there is a keen interest in whether, at the margins, Fed board members may begin to see the need to raise rates and tighten policy.
The language in the statement will probably remain dovish and look to hose down concerns off tapering and rate hikes. But with hints that some within the Fed consider it time to at least start “thinking about thinking about” tightening policy, where those dots fall may prove impactful to market pricing.
Today we also get new housing data from the UK and the US. Global stock markets remain near record highs, while the FTSE 100 closed at a near-16 month high last night.
Yesterday’s economic data was mixed – with a fall in UK unemployment balanced by a 1.3% drop in US retail sales, a drop in American homebuilder confidence, and a 6.6% annual surge in US producer prices. That took some of the heat out of Wall Street yesterday.
- 7am BST: UK inflation report for May
- 7am BST: UK producer price inflation for May
- 8am BST: China’s fixed investment, industrial production and retail sales for May
- 9.30am BST: UK house price index for April
- 12pm BST: US weekly mortgage applications
- 1.30pm BST: US building permits and housing starts for May
- 3.30pm BST: EIA weekly oil inventory figures
- 7pm BST: Federal Reserve releases interest rate decision and economic projections
- 7.30pm BST: Federal Reserve press conference