Consumer price index rose in the U.K. in May to an annualized 3.3 percent to mark the highest in a decade and up from the prior 3.0% back in April and slightly above the 3.2% expected rise, headline inflation rose 0.6% on the month down from 0.8% in April but above the 0.4% expected rise.
Core CPI rose 1.5% inline with median forecasts and up from the 1.4% reported rise previously, marking the highest since October 2007, rising food and energy prices are getting to consumers and this should represent yet another obstacle from Britons ahead of an outlook that is full of recession for the U.K. economy.
Also retail price index rose in May 0.5% down from 0.9% back in April yet slightly above the 0.4% expected rise, while compared with a year earlier RPI rose 4.3% higher than the prior and expected rise of 4.3%.
Britons should start feel the heat from rising inflation, the U.K. economy might be heading into recession or even worse stagflation, the BOE possibly won't be able to cut their interest rates anymore to help revive growth rather upside risks to inflation is seen as the major threat now, the BOE decided to maintain their interest rates steady at 5.00%, and today's rise might lead some to believe the BOE would indeed hike rates rather than slash them off!
The rise in inflation above the 3.00% government target required Mr. King the BOE chairman into delivering a letter of explanation to Mr. Darling, Chancellor of the Exchequer, inflation is expected to continue rising above the BOE's and the Government's upper comfortable zone during this year and might even rise beyond 4.0% in the second half of this year.
The government however will support whatever decision the BOE take, while the inflationary outlook remains subject to unusually high levels of uncertainty, a possible decision might be a fiscal stimulus to help Britons spend their money and maybe help revive growth while the BOE focus on taming skyrocketing inflation! This letter of explanation should be the first among many that the BOE will be handing to the government according to Mr. King.
More news came out today from Germany as the Zew survey was released today for June, the economic sentiment declined to -52.4 from -41.4 and much worse than the expected -42.5, while the current situation index declined to 37.6 from 38.6 yet it was better than the expected 37.0 estimate, as for the 15-nation economy the economic sentiment declined to -52.7 in June from -43.6.
Also the EU-15 trade balance was released today for the month of April, as even when the Euro was flying high hitting record highs the deficit turned to be a surplus, in April the trade balance showed a surplus of 2.3 billion after a reported deficit of 2.3 billion and stronger than the 1.5 billion deficit expected, while on a seasonally adjusted terms the surplus was 2.2 billion in April after a reported deficit back in March of 2.4 billion.
Later today more data on inflation will be revealed from the U.S. economy, while the housing data should continue to highlight further weakness in the worst performing sector in the U.S. economy.
Oil prices continue to hit record highs week after week and seemingly this will continue over the next period, while central banks around the globe are trying to figure out the best possible action to fight inflation without dampening growth levels by that much, should they succeed is still unknown but let's all hope they can have the answer to that question!