Compared to one year ago, the CPI hit 9.1% in June, jumping from the 8.6% year-on-year rise seen the month before. The increase maintains the highest inflation seen in four decades for the US economy.
Wall Street analysts had predicted a month-on-month increase of 1.1% and an annual increase of 8.8%.
June’s rise was heavily influenced by higher fuel and food costs. The price of petrol increased 11.2% from May while energy prices rose 60% over the past year. Food prices were up 1% from May and 10.4% over the previous 12 months.
Last month, Federal Reserve Chair Jerome Powell vowed that policymakers would not allow inflation to overcome the US economy in the long term:“The risk is that because of the multiplicity of shocks you start to transition to a higher inflation regime. Our job is literally to prevent that from happening, and we will prevent that from happening,” Powell said.
“We will not allow a transition from a low-inflation environment into a high-inflation environment.”
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On a monthly basis, headline consumer price index (CPI) was up 1% while core increased by 0.6%. Estimates had been 0.7% and 0.5% respectively.
Surging fuel prices, food prices, and housing costs all contributed to the record-high jump.
Energy prices broadly increased 3.9% from a month ago, bringing the annual gain up to 34.6%. Housing costs rose 0.6%, the fastest one-month gain since March 2004. Food costs, meanwhile, jumped another 1.2% in May, taking the year-over-year gain up to 10.1%.
“What we need to see is clear and convincing evidence that inflation pressures are abating and inflation is coming down — and if we don’t see that, then we’ll have to consider moving more aggressively,” Chair of the Federal Reserve Jerome Powell told the Wall Street Journal last month.
“If we do see that, then we can consider moving to a slower pace.”
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According to the most recent data from the Office for National Statistics (ONS) on Wednesday, the consumer price index (CPI) measure of inflation rose to 9%, the highest it's been since calculations began in 1997. Additionally, the ONS estimates that CPI hasn’t been higher since 1982 when it peaked at around 11%. This is up from a 30-year high of 7% seen in March.
Chancellor of the Exchequer Rishi Sunak commented, "Countries around the world are dealing with rising inflation. Today’s inflation numbers are driven by the energy price cap rise in April, which in turn is driven by higher global energy prices.”
"We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action," the chancellor continued.
The jump in the consumer price index (CPI) survey — which measures the costs of various goods — was the largest on record since February 1982, with the costs of food, electricity, and housing amongst the biggest contributors to the hike.
In January this year, the food index for the US rose 0.9% following a 0.5% increase in December. The energy index was also up 0.9% over the month.
With gas, food, and housing prices still increasing across the United States, just 37% of Americans currently approve of President Joe Biden’s handling of the economy according to a poll by Associated Press-NORC Center for Public Affairs Research.
"What we have seen is inflation not get worse on a month-to-month level, and I am hopeful that will translate into a slow decline as we move through the spring and into summer," said Federal Reserve Bank of Atlanta President Raphael Bostic. “[That] will give me some comfort that we are heading in the right direction.”
According to the Office for National Statistics (ONS), Consumer Prices Index (CPI) inflation dropped to 3.1% in September, having stood at 3.2% in August. Analysts had predicted that inflation was likely to remain flat at 3.2% for the month. However, despite the improvement, the figure remains significantly above the Bank of England’s 2% target rate.
Mike Hardie, head of prices at the ONS, said, “Annual inflation fell back a little in September due to the unwinding effect of last year’s Eat Out to Help Out, which was a factor in pushing up the rate in August.
“However, this was partially offset by most other categories, including price rises for furniture and household goods, and food prices falling more slowly than this time last year.
“The costs of goods produced by factories rose again, with metals and machinery showing a notable price rise.
"Road freight costs for UK businesses also continued to rise across the summer.”
This September, the average price of petrol stood at 134.9 pence per litre, while a year earlier a litre cost 113.3 pence, said the ONS.
The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation increased from 2% in July to 3.2% in August. This is the highest since March 2012 and is the largest increase since records began in 1997. The ONS attributed the jump to discounts seen across the hospitality sector last August under the government’s Eat Out To Help Out scheme, which attempted to boost consumer spending and confidence post-lockdown.
The ONS also said there was likely to have been some impact from the supply chain crisis on inflation last month, which pushed up the prices of food and non-alcoholic drinks. However, the ONS said that the hefty increase seen in August will only be temporary.
Deputy national statistician at the ONS, Jonathan Athow, said: “August saw the largest rise in annual inflation month on month since the series was introduced almost a quarter of a century ago.
“However, much of this is likely to be temporary as last year restaurant and cafe prices fell substantially due to the Eat Out to Help Out scheme, while this year prices rose.”
August’s Consumer Prices Index (CPI), released on Wednesday, showed that the UK’s Eat Out to Help Out scheme had a direct impact on inflation, which fell to 0.2% last month.
Consumer prices rose by 0.2% in August, the smallest increase in annual terms since December 2015. In July, inflation rose by 1%.
The Office for National Statistics (ONS) attributed the low inflation rate in part to restaurant and café prices falling 2.6% in August – their first fall since records began in 1989 – as a consequence of the Eat Out to Help Out scheme.
The scheme, implemented to draw customers back to restaurants and pubs as lockdown measures eased over summer, offered 50% discounts on food orders up to £10 in value. More than 100 million discounted meals were ordered through the scheme.
The ONS also credited other factors for the decrease in inflation, including a significant fall in the price of clothing and footwear. Air fares also fell in price as the COVID-19 pandemic continued to drive demand for international travel lower.
In a statement, ONS deputy national statistician Jonathan Athow emphasised the impact of the government’s dining incentive scheme on August’s CPI. "The cost of dining out fell significantly in August thanks to the Eat Out to Help Out scheme and VAT cut, leading to one of the largest falls in the annual inflation rate in recent years,” he said.
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"For the first time since records began, air fares fell in August as fewer people travelled abroad on holiday,” Athow continued. “Meanwhile, the usual clothing price rises seen at this time of year, as autumn ranges hit the shops, also failed to materialise."
The UK’s inflation rate fell to its lowest level in almost four years as of last month, according to information released today by the Office for National Statistics (ONS).
As lockdown measures came into effect across the country, demand for fuel and energy decreased dramatically, reacting with a global oil surplus to drive crude oil prices down to historic lows. Clothing retailers also slashed prices in a bid to lure customers online.
These factors weighed on the Consumer Price Index, driving inflation lower. While there was also an increase in expenditure on leisure-related products, it failed to make up the difference in consumer spending.
As a result, the roll-out of the UK's nationwide lockdown measures between March and April coincided with the inflation rate's fall from 1.5% to 0.8%
In its release, ONS stated: “Since November 2018, the largest upward contribution to the CPI inflation rate has come from housing and household services. However, reductions to household utility prices in April 2020 saw the group’s contribution to the headline rate fall to 0.16 percentage points, from 0.51 percentage points in March 2020.”
“This is the lowest contribution the group has made to the headline CPI rate since November 2010,” it continued.
Should inflation rates continue to fall in the UK and elsewhere, price deflation may begin to occur, which would impede efforts to revive the world economy as the COVID-19 pandemic abates.
Following last week’s consumer price index (CPI) announcement that comnsumer prices dropped in March by the largest amount in more than two years, Michelle McGrade, Chief Investment Officer at TD Direct Investing, comments and provides some top tips on how to protect from inflation hits like this.
As predicted, inflation will remain at 2.3% today, this remains the highest year on year level since September 2013. This is mainly due to the rise in pound and a fall in Oil. Another factor is airfares continuing not to rise and Easter falling later this year in April.
So, while energy prices fell, food prices rose. All in all consumers are feeling the pinch, according to Visa, consumer expenditure growth in Q1 was the weakest in three years.
Inflation is expected to peak around 3% by the year end. And, while the job market is tight, wages are not moving. This all means that consumer companies will have to fight harder to entice the customer in. Not only is competition intense but there is price pressure too. Let’s also not forget that retail sales have been flourishing for the last 6-7 years so some slowdown is expected.
The weak pound however should help exporters, and the industrial trade should take over, reducing the reliance on the consumer to hold up the economy.
Income funds - Companies with high barriers to entry and pricing power can offer some protection against inflation. Those paying dividends provide a further return, whether you choose to take the income or reinvest it. For global equities, take a look at Artemis Global Income. If you want to access just UK companies, Threadneedle UK Equity Income could fit the bill.
Index-linked Bonds - While inflation is the enemy of bond markets, index-linked bonds, as the name suggests, are linked to inflation in order to protect the value of investments. L&G All Stocks Index Linked Gilt Index provides exposure to the UK index-linked market, although this fund has performed strongly of late and may start to look expensive if interest rates rise.
Alternatives - Infrastructure assets such as toll roads typically have their prices linked to inflation. First State Global Listed Infrastructure is on our Recommended Funds list. Gold can be used as a hedge in uncertain markets and can offer an inflation insurance policy. Take a look at BlackRock Gold & General. Rising property prices, combined with rental yield, have also offered an effective hedge against inflation in the past. L&G UK Property Feeder offers exposure to the UK commercial property market. Commodities is another asset class which is worth considering. Inflation can be closely correlated to the price of oil and other commodities. First State Global Resources invests across a range of commodity holdings.
Exchange traded funds - Another way of gaining low-cost access to these asset classes is via exchange traded funds (ETFs). Here are some you may want to investigate further:
- Global index-linked bonds – iShares Global Inflation Linked Government Bond
- Gold – ETFS Physical Gold
- Commodities – Lyxor Commodities TR/Core Commodity CRB
Areas to avoid - In an environment when interest rates are lower than inflation, cash does not provide any protection. As prices go up the purchasing power of your cash is being eroded – in effect your cash will buy you less. Bonds also typically don’t protect against inflation. If interest rates or inflation go up, the yield on a bond doesn’t go up with them as it is fixed at the time of issue.
The UK’s Office for National Statistics (ONS) today announced that UK consumer price inflation has hit its lowest point since the early 1960's. After a 0.3% reading in January, annual inflation fell further to 0.0% in February.
According to the Centre for Economics and Business Research (Cebr), the greatest contributors to the inflationary slowdown were falling motor fuels and food prices. Taken together food and motor fuel prices have reduced the CPI rate by some 0.9 percentage points in the year to February.
Cebr said it continues to anticipate a brief bout of deflation in the coming months with inflation at -0.3% and -0.1% in March and April respectively. Despite a pickup towards the end of the year, for 2015 as a whole Cebr expects inflation to stand at just 0.4%.
Adam Chester, Head of Economic Research & Market Strategy at Lloyds Bank Commercial Banking, agrees that falling fuel and food prices are having an impact. He said: “The latest drop in inflation to 0.0% leaves the UK on the cusp of deflation for the first time in nearly 50 years. Notably, the drop has not been driven by weakness in the economy but by aggressive supermarket discounting, and the feed-through from lower oil prices to forecourt fuel prices. With sterling’s exchange rate pressing down on import costs and retail energy prices set to fall further, inflation looks set to dip briefly into negative territory over the coming months.
“The drop in inflation is good news for consumers and businesses. Falling food and energy prices are easing the pressure on household finances, whilst businesses will benefit from lower fuel prices and strengthen their ability to invest for future growth. For householders and businesses with debt low inflation strengthens the case for the Bank of England to keep interest rates at a record low.”
According to Cebr, the benign inflationary environment is almost certainly going to prolong the Bank of England’s (BoE) period of inaction. Given the lack of inflation and the pound’s sharp rise against the Euro, the pressure on the BoE to maintain low interest rates for longer has intensified. Cebr expects the first rate rise in February 2016.
The UK economy edged closer to deflation as annual growth of the consumer price index (CPI) fell from 1% in November to just 0.5% in December, according to data released by the Office for National Statistics yesterday. This is the joint lowest rate of CPI inflation on record, equal with 0.5% seen in May 2000.
“The main contributions to the fall came from the December 2013 gas and electricity price rises falling out of the calculation and the continuing drop in motor fuel prices (reflecting the collapse in global oil prices). Falling food prices – a result of intense competition among UK supermarkets – have also played a major role in the low inflation figures,” the Centre for Economics and Business Research (Cebr) said in a statement.
According to Cebr, disinflationary pressures look set to continue in the first half of 2015. Retailers are still in a phase of intense competition, petrol prices should fall back further in the first half of the year and utility companies are likely to cut prices given developments in wholesale markets. Already, E.ON has announced a 3.5% cut to its standard gas prices, and other utility providers will almost certainly follow suit. Cebr said that, with prices for a number of essentials lower now than a year ago, the prospect of inflation on the CPI measure dipping into negative territory - i.e. deflation - is now very real.
However, Cebr claims that a bout of ‘good deflation’ could be just what is needed by the UK economy. Cebr says that, when the main driver of deflation is falling essentials prices – such as food and petrol - this could result in freeing up household spending power for more discretionary goods.
“While even this kind of deflation may have negative consequences if persistent – falling prices mean that the inflation-adjusted value of household and government debt rises – a brief bout should prove virtuous. With weak economic growth in the Eurozone and no hope of an export-led recovery anytime soon, the boost to household spending power from falling food, transport and utility prices could be the shot in the arm that the UK economy needs to maintain momentum in 2015 – especially when combined with the pick-up in earnings growth which Cebr expects to emerge this year,” Cebr stated.
