A market commentary from Giles Coghlan, Chief Analyst at HYCM, following the release of new UK CPI data and the news that inflation has reached 9%.
Inflation To Peak At 10% This Year
“Given that the Bank of England (BofE) expects inflation to peak at 10% this year, today’s print is at least a relief that figures have climbed only 2% higher than the previous reading of 7%. However, lets not get too starry-eyed. As inflation remains at eye-wateringly high levels, average UK earning showed an increase of 7%, confirming that spending power is falling as inflation bites into paycheques.
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"Going forward, investors should be wary of a wage-price spiral, where higher wages lead to higher prices – this feedback loop can result in long-lived inflation, which will be something the BoE wants to avoid.
"So, is inflation out of control? That's the question analysts don't yet know the answer to. The fact that today's print was below the forecasted figure of 9.1% is cause for some optimism. Both the BofE and consumers alike wil be hoping that this is the peak. One key issue to watch going forward is the next energy cap, which is set to go up by around 30% in October. This will worsen inflationary pressures \- whether it will also extend the inflation narrative into the beginning of 2023 remains to be seen.
"Investors can expect the BofE to hike interest rates in June as the most likely course of action, with another in July before the central bank hits pause on its hiking cycle. That said, with negative GDP growth expected in 2023, a rate cut could be on the table next year. For now, today's inflationary print will ring no alarm bells and provide some short-term hope that inflation has peaked."
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