Price pressures remain in pipeline for consumers
CONSUMER price inflation is expected to have remained at 4.5 per cent last month, level with April’s two and half year high — with official figures set to confirm the latest rate tomorrow.
Stubborn price pressures will put further strain on the Bank of England’s monetary policy committee, despite governor Mervyn King admitting that the consumer price index could hit five per cent this year.
“CPI inflation of 4.5 per cent in May would be the 18th month in a row – and the 51st month in the last 60 months – with above-target inflation,” noted Citigroup’s Michael Saunders.
“While we believe the Bank is taking the inflation threat seriously, it is playing with fire and so there’s an unavoidable risk that it gets burned,” added Philip Rush, chief UK economist at Nomura.
“There is a limit beyond which action will become necessary to reinforce just how serious it is about inflation. We hope this doesn’t become necessary by its caution evolving into dithering, but the risk it falls toward the latter is increasing.”
A weak pound continues to exacerbate global cost pressures, with several senior Bank officials insisting that a stronger sterling would impose too much of a threat to the “rebalancing” of the economy towards exports.
“British CPI food prices have risen by 24 per cent over the last four years, by far the biggest rise among the EU’s 15 countries,” Saunders said. “Producer and import prices for foods suggest that further gains in CPI food prices probably lie ahead.”