Inflation by Comparison: How US Price Hikes Parallel UK as Each Reach Record Highs
If it’s true that miserly loves company, then American consumers grappling with the highest inflation rate in four decades can take solace in commiserating with their friends in the U.K., which is in the midst of a similar surge in prices.
U.K. inflation hit a 40-year high of 9% in April for many of the same reasons that U.S. inflation rose 8.3% the same month — a big spike in food and energy prices. On a month-over-month basis, consumer prices in the U.K. climbed 2.5%, CNBC reported. That was just below the 2.6% increase predicted by a Reuters poll of economists.
The U.K’s 9% annual inflation rate is the highest since modern records began in 1989 — the previous high was 8.4% in March 1992 — and came in well above the previous month’s 7% increase.
Britons had been readying themselves for a surge in April prices following a reset in the government’s cap on household gas and electricity bills, The New York Times reported. The cap, which is designed to protect about 22 million households from unaffordable heat and power, climbed by 54% amid a surge in wholesale natural gas prices in late 2021. Ofgem, the U.K’s energy regulation authority, has not ruled out further increases to the cap this year.
Meanwhile, food prices have gotten so high that about one-quarter of Brits have resorted to skipping meals, according to a recent Ipsos survey conducted on behalf of Sky News. Bank of England Governor Andrew Bailey has called the outlook for consumers “apocalyptic.”
To try and rein in inflation, UK’s central bank has taken a similar tactic to the U.S. Federal Reserve Bank. The Bank of England has raised interest rates at four consecutive meetings, from a historic COVID-era low of 0.1% to a 13-year high of 1%.
But while the U.S. rate of inflation decelerated in April from the previous month, inflation in the U.K. has gone the other way.
“Unlike in the U.S., U.K. inflation continues to rise for the time being, stoking further fears around the cost of living,” Richard Carter, head of fixed interest research at Quilter Cheviot, wrote in a research note. “It will also add to the pressure on the Bank of England to increase interest rates and get to grips with soaring prices even if, as they admit themselves, many of the factors driving inflation are beyond their control.”
In another similarity to the U.S., the U.K’s rapidly surging prices come during a period of historically low unemployment. Many workers across the Atlantic — like those here in the U.S. — are asking for raises to help cope with higher consumer prices. This creates a delicate situation for the Bank of England
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“The risk is that should [the Bank of England] raise interest rates too quickly at a time when consumers are already feeling the pinch, then this could crimp demand and push the economy into recession,” Ambrose Crofton, global market strategist at JPMorgan Asset Management, said in a note. “Doing too little, however, risks entrenching inflation expectations and driving a more persistent wage-price feedback loop.”
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