The United Kingdom's inflation rate in December unexpectedly soared to its highest level since 1992, adding impetus to the Bank of England's interest rate hike again.
The latest report released by the Office for National Statistics on Wednesday (January 19) showed that the UK's consumer price index (CPI) rose 5.4% year-on-year in December last year, the biggest year-on-year increase since 1992, well above the central bank's expectation of 4.5%, but also higher than the November 5.1% and economists' forecast of 5.2%.
Inflation in the UK averaged 4.9% in the fourth quarter, higher than the BoE forecast of 4.3%. The December core CPI, which excludes energy, food and other unstable projects, accelerated to 4.2 percent, the highest since 1992.
Bank of England policymakers fear inflation could record 6 percent in the first half of 2022, three times the central bank's target. Last month, the Bank of England announced a 15 basis point hike to 0.25% in its benchmark interest rate, marking its first rate hike since the outbreak of the COVID-19 pandemic. Still, inflation bodes well for a single rate hike that may not be enough.
In terms of sub-data, food and non-alcoholic beverages, restaurants and hotels, furniture and household goods, clothing and footwear drove monthly growth, indicating that the problem of price increases has extended beyond the energy sector. Analysts say historical experience shows that energy will hit consumer bills again in April of each year, when the cost of transportation and vehicle fuel will also increase.
Grant Fitzner, chief economist at statistics, said: "Food prices are growing strongly again, while furniture and clothing are also pushing up annual inflation. Some of these sharp increases were offset by gasoline prices. While gasoline prices rose more steadily this month, they remain at record levels. ”
In addition to the CPI, retail prices in the report also rose 7.5 percent year-on-year, the highest since 1991 and beating economists' expectations of 7.1 percent. In one encouraging sign, the UK Producer Price Index appeared to have eased in December.
Still, Alpesh Paleja, chief economist at the Confederation of British Industry (CBI), believes that "we have not seen the end of rising inflation yet." As prices rise and real wages have fallen, households are likely to face a tightening of the cost of living. ”
Markets expect the Bank of England to raise interest rates at its Feb. 3 meeting with a 90% chance. Some analysts argue that this may not be enough, and like the Fed, the Bank of England should also see "balance sheet reduction" as a tool available in the near future.