UK has a peculiar inflation problem

According to the Organization for Economic Cooperation and Development (OECD), among the Group of Seven (G7) wealthy nations, the United Kingdom stands alone in experiencing a persistent rise in inflation. The data released by the Paris-based organisation on Tuesday indicates that year-on-year inflation in the G7 dropped to 4.6% in May, a decline from 5.4% recorded in April, marking the lowest level since September 2021.

Notably, most advanced economies witnessed a downward trend in inflation during May, as annualised inflation rates declined in the United States, Canada, France, Germany, Italy, and Japan.

However, the UK was found to be an exception to this trend. In May, the UK’s consumer prices for all items surged by 7.9% compared to the previous year, as reported by the OECD, slightly up from 7.8% in April.

The UK’s inflation surge contrasts with other major central banks’ actions, as many of them are considering ending their aggressive interest rate hikes due to cooling prices, even though inflation remains at elevated levels.

In the preceding month, the Bank of England implemented an unexpected 50 basis points interest rate hike, raising the rate to 5%, the highest level since 2008. This move raised concerns about a potential mortgage crisis and differed from the strategies of other major central banks that have either slowed or paused their interest rate hikes.

On a positive note, the year-on-year inflation, as measured by the consumer price index, significantly slowed to 6.5% in May, down from 7.4% in April, bringing the headline inflation in the OECD to its lowest level since December 2021.

Inflation rates in most countries observed by the OECD decreased between April and May, except for the Netherlands, Norway, and the UK.

The inflation rates across all OECD countries showed considerable variability, ranging from less than 3% in countries like Costa Rica, Greece, and Denmark, to more than 20% in Hungary and Turkey.

The core inflation, which excludes volatile food and energy prices, experienced a slower decline across 33 OECD countries, indicating a continuing trend. It reached 6.9% in May, down from 7.1% in April.

Interestingly, energy inflation witnessed a significant plunge to -5.1% in May compared to the previous year, indicating a considerable downturn from 0.7% in April.