UK inflation rate rises to 2.9 pct in May

Britain's inflation continued its recent upward trajectory, reaching 2.9 percent in May, according to a report released by the Office of National Statistics Tuesday.

The latest inflation rate is the highest since June 2013, and above the Bank of England's 2 percent target.

"We expect inflation to rise further over the course of this year and to reach a peak in the final quarter of 2017," Amit Kara, head of UK macroeconomic forecasting at National Institute for Economic and Social Research (NIESR) said.

"This spike in inflation will exert further downward pressure on real household disposable income, at a time when wage growth remains modest, and in turn squeeze consumer spending."

UK economist, Paul Hollingsworth, told media at Capital Economics that he thought CPI inflation is now not far away from its peak. "Although fuel prices fell in May, putting downward pressure on the headline rate, this was offset by rises in a number of other categories, computer games and package holidays in particular," he said.

Hollingsworth said that the rise in price pressures at the start of the supply chain was slowing. Producer input price inflation fell from 15.6 percent in April to 11.6 percent, while output prices held steady at 3.6 percent.

"This supports our view that the drop in the pound has fed through faster than expected, rather than by a larger amount. As a result, while we think that CPI inflation will peak at a little above 3 percent before the end of this year, it is likely to drop back fairly quickly in 2018," said Hollingsworth.

(ASIA PACIFIC DAILY)