Inflation in the United Kingdom hit a nine-year high in August as the economy reopened, with food and fuel prices rising sharply, according to the country’s Office for National Statistics.
After falling to 2% in July, consumer price index inflation accelerated to 3.2 percent in August, the highest pace since March 2012. According to Bloomberg data, economists had predicted a jump to 2.9 percent.
CPI inflation was 0.7 percent month on month in August, after flatlining in July, according to the ONS. Economists had predicted that the rate would be 0.5 percent.
The ONS stated that increases in food, restaurant, and hotel expenses, as well as transportation costs, contributed to the increase. The biggest reason driving higher transportation expenses, according to the report, is rising gasoline prices.
However, it cautioned against extrapolating too much from August’s figures. Food prices declined dramatically in August 2020, the comparative month, as a consequence of the government’s “eat out to help out” meal subsidy scheme, according to the statistics organization. This pushed up year-on-year inflation.
Following the announcement of the report, the pound rose 0.15 percent to $1.383 in European trading. The FTSE 100 stock index was essentially unchanged.
Inflation has risen sharply in the United Kingdom and other advanced economies in recent months, as growth has recovered following the removal of coronavirus restrictions.
The Bank of England has forecasted that inflation could reach 4% by the end of the year. But, like the US and Eurozone central banks, it believes the price increases are only temporary and that inflation will return to its objective of 2% by 2023.
However, Capital Economics’ senior UK economist, Paul Dales, believes August’s result could be the first step toward inflation reaching 4.5 percent. Higher energy prices, he said, are likely to push the figure higher than the Bank of England anticipates.
However, he added: “As many of these positive forces fade away, inflation will decline sharply next year. It may fall below 2.0 percent by the end of 2022 “”Once more.”
The BOE will face a “uncomfortable phase” in the coming months, according to Dales, but it is unlikely to hike interest rates from their current record low of 0.1 percent until 2023.
The UK statistics comes just a day after US CPI inflation fell to 5.3 percent in August, down from a 13-year high of 5.4 percent in July. Inflation in the United States has decreased to 0.3 percent from 0.5 percent a month ago.