Inflation hits 5 year high

Inflation in May reached its highest level since April 2012, as increased prices of clothing, imported computer games and furniture drove up living costs.

In May the Consumer Price Index (CPIH), hit 2.7% according to Office for National Statistics, above analysts’ expectations that it would remain unchanged at 2.6%.

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As CPI is well above the target rate of 2%, this will now increase pressure on the Bank of England’s Monetary Policy Committee to consider raising interest rates above the low of 0.25% when it meets later this week.

The greatest impact came from foreign travel costs a rise in computer game prices and computer equipment which also saw a steep rise, with data processing jumping 3.4%. Household goods and furniture also pushed up overall inflation, rising 1.2%.

eCommera’s head of insight Alex Hamilton said “Core inflation, which excludes food and energy, also unexpectedly picked up in May, reaching 2.6%, the fastest since November 2012. The concern for retailers is that weak consumer confidence, amid political uncertainty and falling real wages, will make shoppers more price conscious, at a time when many brands are looking to pass on cost rises to their customers in a bid to protect margins.

“Indeed, the fall in real wages – the difference between inflation and wage growth – is now the sharpest in three years. How retailers manage their cost base in this inflationary landscape will likely determine profitability this year, especially with some brands expected to incur significant cost increases emanating from the unravelling of Brexit-induced hedging.”

Source: Insight DIY Team

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