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High inflation seems to be something of a trend at the moment – and the public is not happy about. With interest rates still rising and the predicted drop in inflation still nowhere to be seen, does this mean interest rates are about to rise further?
The CPI (Consumer Prices Index) has remained stuck at 8.7% in the 12 months to May, with core inflation rises from 6.8% to 7.1%. Meanwhile, food inflation has dropped to 18.3%, but service sector inflation has risen to 7.4. So what does this all mean?
Danni Hewson, AJ Bell head of financial analysis, said: “Inflation had been expected to fall – at least a bit – but it hasn’t obliged, remaining stubbornly sticky and cementing the prospect of a rate rise tomorrow as well as raising expectation that the hike will be higher than had been previously anticipated.”
“There is a tiny bit of good news hidden in this troubling update from the ONS and that’s the rate at which food prices are rising, which has slowed, but it will be little comfort to all those facing huge increases in their monthly mortgage payments. Savings cushions have been eroded over the past year and there will be many households facing the real prospect of being unable to keep paying for the roof over their heads.”
MoneyMagpie’s Jasmine Birtles adds: “Stubbornly high inflation figures mean that the Bank of England is more likely to put up interest rates. However, I don’t think this will do any good. All it will do is create more pain for mortgage holders and businesses.
“It’s not a tool that will work in the current economic environment. We need to demand peace in Ukraine rather than fuelling the fire; we need to work harder at creating our own, cheaper energy, and we need to encourage farmers to grow more food rather than telling them to stop farming.
“Merely making money more expensive to borrow won’t help us in this country. Money is already ’too tight to mention’ in the UK. We need help, not a beating!”
Echoing Jasmine, Danni Hewson, concluded: “These inflation numbers show the Bank of England still has a big job to do if they’re to root out the inflation, which seems to have become embedded in the very fabric of our economic lives.
“There will be more pressure on the government to step in and help struggling homeowners. Support for struggling households during Covid, and the energy crisis has come with a significant price tag as benefits have been uprated and the government is also being hit with higher wage costs.
“We were warned that the medicine required to cure our inflationary ailment would taste foul, but the reality is proving more unpalatable than many had expected.”
For more on inflation, see our ‘What is inflation’ feature.