Thread by @HenryOccleston

🇬🇧 UK May Inflation Soars

Headline (+8.7% YoY) and core (+7.1% YoY) beat consensus expectations by +0.3ppt.

As a result, the May MPR forecasts are looking very stale.

Let's dig in!

One (of a couple) 🧵s I'll be putting on BoE/monetary policy...

#CPI #inflation #BoE

The +0.7% MoM core reading, while not so extreme as the Apr level, presented a continued strong beat of typical monthly values.

Since Feb, core inflation has shown only very small signs of returning towards the 2% target. The BoE will need to be done to counter it.

Inflation remained very broad: 10/12 sectors beat their typical monthly rate.

Big beats came in Clothing, Comms & Rec. The re-acceleration in restaurants is also a concern

If anything, this is more worrying to the BoE than the surprise jumps in Apr.

Services Continue to Accelerate
The April beat in services inflation was predominantly communication services driven.

However, in May, the momentum continued, with a further widening of the actual YoY services inflation over the MPC’s May forecast

Rising transport serv. prices was largest driver behind the YoY serv. rise.

Air trans. rose by 20% MoM: the sector is always volatile, but usually follows strong seasonality. In the last 20y, only 2013 saw a more rapid May MoM rise; so the effect on YoY inflation was dramatic

There is little positive for the BoE to take from the CPI release. However, there is (modest) reassurance that most wage-intensive services sectors are not accelerating.

Instead, it is non-wage intensive sectors that are providing the biggest acceleration tailwinds.

Together this adds to our conviction that while the BoE is unlikely to be able to deliver the 6% the market is now pricing to YE, it is better value waiting until the mood begins to shift before looking to fade the move.

To get all our most up-to-date analysis, including direct access to chat with our strategists (including @firstkicktires), join us at macrohive.com