CPI unexpectedly jumped back above the Bank of England’s 2.0%Y target for the first time since July 2019. However, a good chunk of the move compared to April comes from two of the components regularly responsible for upside and downside inflation surprises in the UK (clothing and computer games), as well as energy prices.
Looking at the other components there are some echoes of the kind of reopening effects we’ve seen in the US. Prices for restaurant meals rose between April and May for example and contributed to the rise in year-on-year inflation.
The Bank of England’s Monetary Policy Committee was expecting CPI inflation to rise (temporarily) above target at the end of 2021. However, to the extent that the surprise this month will have been driven by clothing and computer games, they are unlikely to read much into it. Any re-opening effects are more meaningful, but – as in the US – policymakers are likely to assume that these are temporary ‘one-off’ adjustments for now.
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