UK consumer price inflation rose to 1.9% in June, up from 1.5% in May and above the consensus forecast of 1.6%. Prices of clothing and food items were the key drivers behind the surprise increase, pushing inflation closer to the Bank of England’s 2% target.
Subdued inflation has provided central banks with significant leeway for their expansionary monetary policy in recent years. However, inflation now appears to be on the rise in the UK and the US which could force the Bank of England and the Fed to expedite their plan for raising interest rates.
If inflation was to continue to move higher central banks could risk being caught behind the curve on inflation. But their economists can always “strip out” clothing and food items from the inflation measure. After all, who eats food and wears clothes these days!