UK inflation jumped to 2.1% in May, breaching the Bank of England’s target for the first time in two years and stoking fears that the easing of pandemic restrictions since March will lead to a sustained rise in the cost of living.
The price of fuel was one of the main drivers of May’s increase, soaring by almost 20% from last year to push the rate of inflation up from 1.5% in April.
The increase is ahead of a forecast of 1.8%, and means the consumer price index has now overshot the national 2% target.
On the high street, the cost of clothing, meals and pub and restaurant drinks also helped drive up prices, with online sales of computer games a contributing factor, said the Office for National Statistics.
Some economists have voiced fears that inflation will continue to escalate as consumers spend an estimated £160bn of savings accumulated over the last 16 months. Shortages of raw materials such as timber, and manufacturing components, including computer chips, could add to pressure to shop prices.
The pattern in the UK is mirrored in the US, where last week inflation during May rose to the highest rate since 2008. It is running at 5%, up from 4.2%.
Jack Leslie, a senior economist at the Resolution Foundation, said: “Inflation has risen sharply in recent months and will rise further as the impact of higher commodities prices feed through the supply chain. But UK inflationary pressures are different – and nowhere as near as large – as those causing fierce debate in the US.
“Looking ahead, with the medium-term outlook for inflation in the UK still relatively benign, policymakers should look beyond today’s figures and worry far more about rising unemployment than rising inflation.”
The concern is that central bank policymakers on both sides of the Atlantic will have little choice but to respond by increasing interest rates to limit the spending spree, with the effect that more firms will go bust and unemployment will grow.
However, Bank of England forecasts show inflation rising above its annual 2% target only briefly over the next year before falling back. The central bank has argued that consumers are only likely to spend a small fraction of their pandemic savings, putting less pressure on prices.
The price of raw materials on global markets has begun to fall, further easing concerns that the current increase in inflation will continue and be sustained into next year.
– The Guardian UK