Inflation in the UK accelerated the fastest in nearly two years last month as businesses reopened and social distancing restrictions eased. Consumer prices rose 2.1 percent in May compared to the previous year, the national statistics agency announced on Wednesday.
For the first time since July 2019, the annual inflation rate climbed above the Bank of England’s 2 percent target. In April it was 1.5 percent.
Prices rose 0.6 percent in May compared to the previous month, driven by growth in clothing, transportation, restaurants and hotels, and leisure expenses such as computer game downloads.
Across Europe and the United States, policymakers and investors are closely monitoring inflation for signs of whether the current surge in prices is temporary or lasting. Part of the rise in annual inflation rates can be explained by the fact that prices were so low a year ago when economies closed in response to the pandemic.
But the reopening is also causing prices to rise as companies try to keep up with a sudden surge in demand. If inflation stays high and rises faster than expected, it could be a sign that the economy is overheating and central banks are being forced to withdraw monetary stimulus. On Wednesday, the Federal Reserve will make its next monetary policy announcement amid rising inflation expectations in the United States.
“The intensification of price pressures in the UK is part of a global phenomenon as the world emerges from the Covid-19 pandemic,” Ambrose Crofton, strategist at JPMorgan Asset Management, wrote in a note. “As a result, central banks are gradually tiptoeing towards the exit of their emergency monetary policy programs.”
The Bank of England expects inflation to climb to around 2.5 percent by the end of this year before falling again. The next political meeting will take place on June 24th.