Information from the Office of National Statistics has shown that inflation, a huge bugbear which has raised its head over the past few months, is most certainly an unpleasant reality in the United Kingdom. Inflation has risen 2.5% year on year, having increased once again in June, outstripping economists' predictions and exceeding the government's target of 2%.
The Consumer Price Index has shown a rise of 2.5% in 12 months ending June this year, which has been largely a result of the devastating lockdowns inflicted on the country by the government. This now stands inflation at its highest point since August 2018, and the cost of most essential items such as food, clothes and transport are all now at high levels.
Interestingly, the GBPUSD pair has remained stable, and is at 1.39 today, having not displayed much volatility for a long period of time. The British inflation issue is not affecting the Pound's price against the Dollar, likely because the United States has also been riding a wave of inflation, with levels increasing to a 13 year high in June this year.
In the US, consumer prices increased by 5.4 per cent in the year to the end of June, up from 5 per cent the previous month, marking the largest increase since August 2008. The Office of National Statistics' Deputy National Statistician for Economic Statistics Jonathan Athow today made a public statement, saying "The rise was widespread, for example coming from price increases for food and for second-hand cars, where there are reports of increased demand."
"Some of the increase is from temporary effects, for example, rising fuel prices which continue to increase inflation, but much of this is due to prices recovering from lows earlier in the pandemic. "An increase in prices for clothing and footwear, compared with the normal seasonal pattern of summer sales, also added to the upward pressure this month" said Mr Athow.
In terms of category, the least affected by the inflation increase has been the health sector, whereas alcohol and tobacco have been slightly affected, yet the most affected services and products have been the essential ones such as housing, furniture, transport and clothing and footwear. Traders in Willesden Market in north-west London interviewed by the BBC said they were feeling the effects of those supply shortages, with their wholesale costs going up sharply.
However, they added that they were finding it difficult to pass on those costs to their customers, who were unwilling or unable to pay more. Despite this, the GBPEUR pair has experienced the rise of the pound against the Euro over the past few days and this morning stood at a 5 day high before settling slightly lower at 1.17, so currency volatility is not a feature at all.