Inflation is infamous for its head-fakes and has a tendency to dish out one nasty surprise after another – at least for observers that keep expecting that inflation will somehow go down on its own. Today, the inflation shocker occurred in the UK. And this is a warning for all economies: inflation has gotten solidly entrenched in services, and is getting even worse.
Core CPI spiked month-to-month by a scary 0.8% in May, which translates into an annualized spike of 10%, according to data from the UK Office of National Statistics (ONS) today.
Year-over-year, core CPI spiked by 7.1%, the worst since March 1992. Core CPI excludes energy, food, alcohol, and tobacco. It has now left in the dust the false-hope declines that started in November.
| Major Components, Core CPI | MoM | YoY |
| Clothing, footwear | 1.3% | 7.0% |
| Housing, household services | 0.3% | 7.3% |
| Furniture and household goods | 1.1% | 7.5% |
| Health | 0.6% | 8.5% |
| Transport | 0.3% | 1.3% |
| Communication | 0.9% | 9.0% |
| Recreation and culture | 0.7% | 6.8% |
| Education | 0.0% | 3.2% |
| Restaurants and hotels | 1.0% | 10.3% |
| New and used vehicles | 0.5% | 4.2% |
| Miscellaneous goods & services | 0.6% | 6.7% |
Services CPI spiked by 0.8% in May from April (10% annualized) powered by the spikes in routine maintenance +1.2%, transportation services +3.3%, including air fares +20%, recreational and cultural services +1.1%, insurance +1.1%.
Housing and household services rose “only” 0.3% for the month (but was up 7.3% year-over-year).
Year-over-year, the service CPI spiked by 7.4% in May. Inflation in services is notoriously hard to stamp out. And it’s where all heck has now broken loose – in what is a global phenomenon.
Food inflation rages at a slightly less horrible pace. The CPI for food and non-alcoholic beverages spiked by 0.9% in May from April (11% annualized), which is terrible, but it’s less terrible than in prior months. Bread and cereal: +0.8%; fish +1.8%; oils and fats +0.9%; vegetables +2.1%; sugar, jam, syrups, chocolate, and confectionary +1.7%; mineral water 1.1%.
But coffee, tea, and cocoa fell 1.6% month-to-month; fruit and meat rose “only” 0.4%; and milk, cheese, and eggs rose “only” 0.5% (that’s still 6.2% annualized).
Year-over-year, the CPI for food soared by 18.4% in May, and while horrible, it was down from 19.1% in April and from 19.2% in March, the worst since 1977, according to the ONS’s “indicative modelled estimates” (its actual CPI data don’t go back that far).
But don’t blame Brexit for food inflation: there are countries in Europe with worse food inflation, including 34% in Hungary. In Germany, which didn’t have a Dexit or whatever, food inflation was 14.9% in May.
But motor fuel prices plunged by 13.1% year-over-year, after having spiked by as much as 44% last summer.
Overall CPI jumped 8.7% in May year-over-year, same as in April, and by 0.7% month-over-month (8.7% annualized), despite the plunge in motor fuels. Overall inflation had peaked at 11.1% in October.
This is the case everywhere globally: Plunging energy costs have pulled down overall inflation indices, even as the indices for underlying inflation, such as core CPI and services CPI, continue to rage near or at multi-decade worst levels. This scenario is now playing out wonderfully in the US and in the Eurozone:
But don’t blame Brexit for inflation in the UK: there are 10 countries in continental Europe with worse overall CPI inflation:
| Austria | 8.8% |
| Romania | 9.6% |
| Lithuania | 10.7% |
| Serbia | 10.7% |
| Estonia | 11.2% |
| Latvia | 12.3% |
| Slovakia | 12.3% |
| Czechia | 12.5% |
| Poland | 12.5% |
| Hungary | 21.9% |
The one-year UK government bond yield, in reaction to the inflation news, rose by 12 basis points to 5.20%, the highest since 2008, as it begins to price in higher BOE policy rates than previously expected:
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