The cost of living in the UK bumped above an already 40-year high last month driven higher by soaring energy and food prices.
That’s according to the City’s consensus prediction of Wednesday’s new inflation figures from the Office for National Statistics (ONS).
Analysts expect prices to have climbed 9.1 per cent over the year to May, slightly higher than April’s four decade high reading of nine per cent.
However, some are baking in a higher surge.
“What’s driving May inflation? In a nutshell, everything,” Sanjay Raja, senior economist at Deutsche Bank, said, adding “inflation on every metric is now tracking at fresh multi-decade highs”.
He thinks living costs jumped 9.2 per cent annually, in line with the Bank of England’s expectations for May’s data.
Britain’s cost of living crunch is being driven by a combination of higher energy prices, a tight labour market and historic petrol prices.
European energy costs have surged due to a constrained capacity to store inventories, a fire at a US liquified natural gas plant choking trade flows and concerns over supplies as a result of Russia’s invasion of Ukraine.
Although the UK is not entirely dependent on continental energy supplies, prices in the bloc do ripple into markets where it does source oil and gas.
Last week, the Bank of England warned the rate of price rises will climb above 11 per cent in October when the energy watchdog raises the cap on bills again.
Governor Andrew Bailey and co opted for a 25 basis point rate rise, taking them to 1.25 per cent, instead of the larger increase its US counterpart the Federal Reserve chose last Wednesday.
Markets think the Bank will have to accelerate its tightening pace to get on top of inflation, forecasting rates will reach three per cent around the start of next year.
Food prices have also climbed due to retailers partially passing on higher energy and staffing costs and higher basic foodstuff – such as grain – prices caused by Ukraine struggling to export goods.
Rents and services prices have also jumped, feeding wider inflationary pressures.
Others point to a slowdown in core inflation – which strips out goods that are subject to volatile price movements – as a sign of cost pressures cooling.
Sharp rises in “prices for many services jumped in May and June 2021, as the end of the lockdown meant the ONS stopped inputting the data and triggered many firms to hike their prices” will tame the headline rate, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said.