Price rises speed up again as economy unlocks

20 July, 2021

As the country’s economy continues to unlock, UK inflation rate hit 2.5% in the year to June 2021, the highest for nearly three years and above most economists' forecasts of an increase of about 2.2%.

The Consumer Prices Index measure of inflation rose from 2.1% in May and the Office for National Statistics has put this rise down to higher food and fuel costs.

The rate is higher than the Bank of England's 2% inflation target for a second month and is likely to put pressure on the Bank of England to consider increasing interest rates to cool the economy.

As well as supermarket price increases, dining out cost more, and while clothing and footwear is usually cheaper at this time of year, prices went up instead.

Second-hand car prices also increased between May and June this year, whereas in recent years, they have fallen between these months, the ONS said. This increase is likely to be down to supply issues with some buyers having to buy used cars as a result of delays in new car production caused by the shortage of semiconductor chips.

The Bank of England’s rate-setting Monetary Policy Committee (MPC) has taken the view that the current inflation surge is "transitory" and will fall back after peaking at 3% while others are warning that the risk of high inflation is rising fast and could reach nearly 4% this year.

Much of the reported increases are the result of comparisons with prices that were falling a year ago at the height of the lockdown. It is predicted that inflation will continue to rise before falling back to normal, as the economy further reopens. The reasons for this global rise are being attributed to demand rebounding quickly after the pandemic, while supply is taking a little longer to ramp back up.

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