UK inflation jumps more than expected to 30-year high of 7%

Bloomberg

UK inflation surged to a 30-year-high of 7% last month, intensifying a cost of living crisis that threatens to derail the
economic recovery.
Consumer prices rise by 1.1% in March alone, the fastest increase on record for that month. It adds to pressure on the government and Bank of England to act, with prices set to surge further this month when a 54% increase in energy costs hit household bills.
Inflation is now a major danger for businesses, consumers and Prime Minister Boris Johnson’s administration. Tesco warned that it faces a battle to keep prices low and could see a hit to profit this year. The BOE sees inflation hitting 8% in the coming months and is expected to raise interest rates again on May 5.
The reading underlines the severity of the squeeze on our finances this year,” said Ed Monk, associate director at Fidelity International. “British households are getting poorer in real terms, and many face having to cut back on anything that isn’t
essential spending.”
Economists and charities united in calling on Chancellor of the Exchequer Rishi Sunak to do more to help households struggling to make ends meet, saying his latest aid package won’t help many of the families on the lowest incomes.
March’s reading is the last before the BOE’s next meeting, when policy makers will update forecasts. It marks the sixth straight month of inflation exceeding economists’ estimates.
“Britain’s cost-of-living crisis — on track to big the biggest squeeze since the mid-70s — will continue to worsen before it starts to ease at some point next year,” said Jack Leslie, senior economist at the Resolution Foundation, a research group campaigning against poverty. “The sheer scale of this inflation-led squeeze on living standards makes it all the more remarkable how little support the chancellor provided in his spring statement.”
In a statement, Sunak said “we’re seeing rising costs caused by global pressures in our supply chains and energy markets which could be exacerbated further by Russian aggression in Ukraine. I know this is a worrying time for many families which is why we are taking action to ease the burdens.”
The acceleration was driven by a broad increase in prices across the economy, with motor fuels surging 9.9% from February, the biggest increase in 31 years.
The cost of restaurant meals, hotels, furniture, clothing and shoes also made upward contributions.
“The data tells a story of what millions are currently living — steeper bills on everything from petrol to food and fuel, and less left over at the end of each month to put towards their future,” said Colin Dyer, client director at the fund manager Abrdn.
Gilts tumbled at the open, sending the UK 10-year yield surging 6 basis points to 1.86%. Money markets raised BOE tightening wagers, expecting 143 basis points of rate hikes by year-end versus 137 basis points.
The UK central bank is not the only one grappling with faster inflation. Data on Tuesday showed US consumer prices rose 8.5% in March, the biggest increase since late 1981. That prompted Federal Reserve Bank of St. Louis President James Bullard to suggest that U.S. monetary policy needs to be tightened to a point that it curtails economic growth or policy makers will end up risking their credibility.
In total, more than a quarter of the ONS’s inflation basket is seeing inflation run above 10%.
The retail price index, a measure used to set benefit payouts and interest on inflation-linked debt, rose 9% from a year ago, the most since January 1991.
There was also strong evidence of inflationary pressures building at the wholesale level. Producer prices rose 11.9% from a year ago, the most since 2008. Raw materials costs surged 19.2%, the biggest increase since those records began in 1997.
The price of goods leaving UK factories has continued to rise substantially with metal and transport products both at record highs and food reaching its highest rate for more than a decade.
That’s hurting UK retailers, as well as households, with supermarket giant Tesco Plc warning on Wednesday that profit may decline this year as it battles to keep prices low for consumers.