UK CPI (Jun) – 19/07 – UK inflation slowed less than expected in May, coming in at 8.7%, while core prices confounded expectations by rising to a new 30 year high of 7.1%. The key drivers were a big jump in recreation and culture and specifically fees to live music events, which some put down to higher ticket prices for the likes of concerts by Beyonce and Taylor Swift. Restaurants and hotels also saw a lift during May, and this could have been down to the Coronation and the two bank holidays which provided a lift to that sector. Food price inflation slowed to 18.3%, however we already know from the most recent Kantar survey that in June this slowed to 16.5%, although the process remains glacial, but should continue to slow.
A lot of this increase in services price inflation will be down to the paying of higher wages to staff, but we can also blame the energy price cap, which has meant that consumers haven't seen sharp falls in the cost of their energy costs straightaway, forcing them to push for higher wages. This should start to become more apparent in the July numbers when they are released a month from now, while there is also optimism that slowdowns being seen in PPI should start to feed through into the headline CPI numbers in the back half of this year. This week's numbers probably won't alter the calculus around a 25bps rate hike by the Bank of England in 2 weeks' time, however a strong number could increase the pressure to go bigger and hike by 50bps, which for now looks the most likely outcome. Expectations are for June CPI to slow to 8.2%, with core prices set to remain unchanged at 7.1%.
