Commenting on the Consumer Price Index (CPI) published today Royal London Asset Management’s Senior Economist, Melanie Baker, said:
“The strong May inflation data will reflect a number of factors and there may be a fair bit of ‘noise’ in there given upward pressure this month from categories like computer games. However, even if some of the rise in core inflation in May was noise, domestically-driven inflation looks strong. Services inflation, for example, rose further. Although air fares and tickets to live music events will have played a role in that and may well prove temporary upward inflation drivers, it was striking how little downward pressure you could see across the main services components generally. Pay growth remained strong on the data released last week too.
"Today’s figures overshot the last set of Bank of England staff forecasts. The Bank have continued to signal that if inflation pressures prove more consistent then they will need to tighten monetary policy further. Consensus has been that they will raise the policy interest rate by 25bp at tomorrow’s meeting. However, there was already a case for them going 50bp and the data today supports that case. I would not be surprised if we see a 50bp rate rise from the Bank of England tomorrow.”
The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.