UK inflation hits 30-year high of 7% as energy prices rise

The 7% annual rise in UK inflation in March is the highest since 1992.

Photo by Christopher Furlong/Getty Images

LONDON – UK inflation hit an annual rate of 7% in March – its highest level in 30 years – as soaring food and energy prices continue to squeeze consumers and pose a dilemma to policy makers.

Consumer prices rose 1.1% month on month, beating expectations of a 0.7% rise in a Reuters poll of economists, which had also forecast a 6.7% annual increase.

The 7% annual increase in the consumer price index is the highest since March 1992, surpassing the 6.2% increase recorded in February.

Since April 1, the UK’s energy regulator has raised the household energy price cap by 54% following a spike in energy prices, including a record rise in global oil prices. gas.

The Bank of England has hiked interest rates in three consecutive monetary policy meetings, pushing borrowing costs from an all-time low of 0.1% to 0.75%, as it seeks to contain galloping inflation without crushing economic growth.

Central banks around the world are grappling with a balancing act between tackling soaring inflation and signs of slowing economic growth, with the Russian-Ukrainian war hampering the recovery of economies from the Covid-19 pandemic.

Boris Glass, senior economist and director of S&P Global Ratings, said UK inflation rates are expected to rise and remain at record highs throughout 2022.

“The raising of the cap on household energy bills will add about an extra percentage point by the end of this month. Soaring inflation will hit household budgets hard, especially those on low incomes who have now exhausted their pandemic economies,” Glass said in an email Wednesday.

“While the short term looks painful, the bulk of high inflation should start to decline as early as next winter, if global energy prices do not continue to rise.”

Even if and when inflation drops, however, it will remain above the central bank’s target until next year, Glass anticipates. He also suggested that if energy price caps rise further in October, inflation will decline more slowly and last considerably longer.

β€œThe Bank of England is worried about medium-term inflation. While the current high rates are largely due to global energy prices, the fact that the domestic elements are gaining momentum justifies more and more this worry,” Glass added.

The global supply shock caused by Russia’s invasion of Ukraine, which shows no signs of abating, means that inflation should peak higher and take longer to moderate, according to Ambrose Crofton, global market strategist at JPMorgan Asset Management.

“Besides the obvious impact the war has had on consumer bills, Russia’s key role as a commodity producer extends beyond just energy to many industrial metals and fertilizers,” he said. noted Crofton.

“As a result, consumers should see upward pressure on the prices of goods and food in the coming months.”

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