UK inflation rose 3.2% in August, the highest ever recorded

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UK inflation rose 3.2% yoy in August, up from 2% yoy in July. This is the largest monthly increase in the historical series that began in 1997. Analysts expected a slight recovery to 2.9%.

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UK inflation at record high

As confirmed by the Office for National Statistics (ONS), the monthly increase in the overall CPI was 0.7% – above the 0.5% forecast by analysts. However, the agency has indicated that this sharp monthly increase is “likely to be a temporary increase”.

With this in mind, the ONS has stated that the largest contributor to the increase is a base effect, due in part to the restaurant and café discounts in August as a result of the government’s “Eat Out to Help Out” initiative and, to a lesser extent, VAT cuts in the same Sector.

Gastronomy and hotels, leisure and culture, as well as food and non-alcoholic beverages made the biggest contributions to the change in the 12-month inflation rate between July and August 2021.

In the statement cited by CNBC, the office said, “Since EOHO was a short-term program, the upward shift in the 12-month inflation rate from August 2021 is likely to be temporary.”

Samuel Tombs, UK chief economist at Pantheon Macroeconomics, claims that rising used car prices also played a large role in the rise in the consumer price index.

“The month-on-month increase in core CPI above average was also mainly due to a huge 4.9% increase in used car prices, which drove the inflation rate for that component to a noticeable 18.3%,” he said.

Inflation concerns

Meanwhile, US wholesale inflation rose a steep 8.3% in August, the highest ever recorded. A report by Contingent Macro Advisors indicated that “supply chains have never been the same since the pandemic and are unlikely to normalize for at least six months”.

The record inflation is reported before the holiday season, which experts say is marred by shipping delays due to labor shortages and supply chain restrictions.

China is also facing similar problems as its wholesale inflation is higher than the US. The country’s producer price index rose 0.8% in August and is up 9.5% in the past 12 months, the fastest rate in 13 years.

Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc in Hong Kong, told Bloomberg, “Our analysis shows a fairly close correlation between China’s PPI inflation and US CPI inflation. Our forecast is for increased PPI inflation until the end of the year before it subsides next year. “


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