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Tuesday, May 13, 2008

U.K. Inflation Rises the Most Since 1992

Source: Daily FX

U.K. inflation increased to 3.0% in April from 2.5% the month prior-the biggest increase since 1992. The rate stands 0.1% from breaching the central bank’s upper limit, which requires Governor King to write a letter of explanation to Chancellor Darling. A look at the components reveals that soaring food and energy prices are eating away consumer’s purchasing power. Food prices rose 5.8% as record wheat prices fed increases in Alcohol and Meat which increased 4.1% and 4.2% respectively. Energy costs also jump 13.6% after a 12.0% increase in March, as Oil prices continue to set new records. The appreciation in prices will make it difficult for the BoE to cut rates at their June meeting. Expectations have been that a quarter point cut was forthcoming as the housing slump and tight credit markets have started to filter throughout the rest of the economy and have weighed on consumer confidence and spending.

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