- The CPI measure of inflation hits 10.1%, the highest level since February 1982.
- Painful rise in prices means the Bank of England is set to keep on its strict path of rate rises.
- Signs that shoppers in the US are tightening belts, but Wall Street rises on retail resilience.
- Brent crude inches back above $93 a barrel, but lid on price rises expected amid Iran deal hopes.
The relentless rise upwards in prices continues, with little sign of a break for consumers who are desperately trying to make ends meet. Inflation has now hit double digits, a painful financial milestone but the worst is yet to come.
At 10.1% this is the highest peak for inflation since February 1982 when The Jam were at the top of the charts with A Town called Malice. Right now the Bank of England finds itself in a sticky situation, with little option but to keep raising interest rates to try and lower demand in the economy. Policymakers are in a jam because they know full well that this monetary policy squeeze risks pushing the UK economy into recession, if it isn’t there already. This boiling temperature will mean policymakers won’t easily be able to turn down the heat on those rate rises given their stated determination to put a lid on inflation and bring it back to its 2% target.
Read also this FintechZoom article: Exploring the Impact of Food Inflation: What You Need to Know.
The ONS data indicates that inflation rose more sharply in the UK than other G7 nations like France, Germany, Italy and the US. With more painful hikes in energy bills to come, and prices rising rapidly in supermarkets, many consumers are already having to make some hard choices about how to spend their dwindling budgets. The path is set for a scorching summer of price rises to merge into a pretty awful Autumn and a winter of woe as households struggle against this tide of inflation.
In the US for now, retail sales appear to be holding up, which has buoyed Wall Street, but shoppers even in wealthier households are searching out bargains, with discounting helping push Walmart earnings above expectations. Investors have clung onto this as a sign of consumer resilience and an indicator that the US may avoid recession, but it could also be read as a sign that shoppers are battening down the hatches and preserving their dollars and cents for tougher times ahead.
With energy making up such a big chunk of inflationary pressure, the drop off in the price of oil since the start of the month will come as some relief. The price of a barrel of Brent Crude has inched up marginally since the fall to below $93 yesterday, after a US inventory report showed a larger than expected decline of crude stockpiles. Hopes remain that there could be a deal reached with Iran to revive the nuclear accord and lift sanctions which could push another 2.5 million barrels per day onto the market and that’s helping keep prices lower. That deal isn’t likely to be imminent but concerns about a dramatic slowing in the global economy are likely to keep a lid on crude prices.
See here Brent Crude Live Prices.
FintechZoom talked with Alastair Douglas, CEO of TotallyMoney:
“There seems to be no light at the end of the tunnel of the spiralling fuel, food and energy prices. For many, there is simply nowhere to turn.
“Financial fragility has hit millions and this is likely to worsen over the coming months. As we inevitably head into a recession, it’s vital the government takes action to cushion the hardship faced by many.
“Firms have a duty to act responsibly to help consumers find solutions which can help them move their finances forward. Accessing credit might be the right solution for one person, but not for another. We need data to be open and accessible to individuals so they can take control of their own personal financial information and act accordingly. Otherwise they risk staying in the dark and falling into further difficulty.”
Alastair Douglas, CEO of TotallyMoney
FintechZoom talked also with Adam Zoucha, MD EMEA of FloQast:
“Inflation is really putting the heat on the accountancy function. With high inflation, the pressure on businesses’ purse strings will intensify and bring more scrutiny and demand for quick and accurate financials at month end.”
“High inflation will also act as a lever for change. It will prompt many businesses into action, as they search for ways to give their accountants more time to think strategically.”
“Finance teams often struggle to increase headcount when spending is scrutinised, so many CFOs will be looking for ways to extend their resource. Workflow automation stands to be a key solution to this problem – specifically, the automation of the more mundane accounting items, which drives efficiency and creates more time for accounting teams to be strategic in today’s volatile environment.”
Adam Zoucha, MD EMEA of FloQast
FintechZoom talked also with Giles Coghlan, Chief Analyst, HYCM:
“Today’s inflation print, which has once again risen above expectations, will provide investors with some serious food for thought. With many becoming increasingly concerned about growing stagflation fears, this has prompted the Bank of England to bring its recession projections forward in recent months, with a five-quarter recession now predicted this year. Undoubtedly the newest CPI reading means that we may see further GBP weakness in the medium-term, as it signals clear stagflation for the UK. This is despite a 0.5% interest rate hike now priced in by STIR markets, which illustrates the problem for the BoE. The central bank must hike rates to control surging inflation, but it does so at the expense of growth.
“In many ways, the latest CPI reading will fall into focus for many investors, who will be conscious that there are no new or responsive fiscal policies in the making from Boris Johnson’s government, as the prime minister prepares to stand down in September. Depending on the outcome of the ongoing leadership contest between Rishi Sunak and Liz Truss, things could change, with Truss in particular keen to shift the BoE’s mandate. Right now, this is a key risk for the GBP, but as ever, the devil will be in the detail.”
Giles Coghlan, Chief Analyst, HYCM
