Despite rising inflation, the UK CPI remains below the Bank of England (BOE)’s target, whereas CIPH rose by 0.7% in April.

Today’s economic calendar is dominated by inflation data. The UK was the first country to report the data for the month of April, followed by the European area and, later in the North American session, by Canada.

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The UK data showed rising inflation for the month of April. Prices of goods and services rose by 0.7% in April, sending the annualised number up to 1.5% – still below the BOE’s 2% target.

As a central bank watching over a developed economy, the Bank of England runs an inflation-targeting mandate. It aims at bringing inflation close to 2%, and uses all available tools to achieve its mandate. Therefore, the rise in inflation is viewed as a positive for the UK economy.

Despite the BOE keeping quantitative easing in place and having the current bank rate at 0.1%, pressure mounts to start normalising the policy the closer annual inflation comes to the 2% target.

Details of the UK Consumer Price Inflation Report – April 2021

The largest contributions to the rise in inflation were made by the prices of household utilities, motor fuel and clothing. On the other hand, recreation and cultural activities have offset the rise, albeit only marginally.

An interesting take on today’s report comes from the CIPH – Consumer Price Index, including owner occupier’s housing costs. The index rose more than the CPI, reaching 1.6% on an annualised basis, with transport prices and household services having the biggest contribution in the increase.

The RPI, or the Retail Prices Index, data was also released today, showing an increase by 2.9% on expectations of 2.4% and 1.5% in the previous month. It reflects the goods and services bought for consumption by UK households.

It should be noted that the UK’s economy was in a hard lockdown until recently. In addition, the British weather did not quite help recreation and cultural activities in April.

Therefore, the opening of the UK economy, combined with the improved weather and an upbeat in the UK services industry, suggests inflation may keep rising in the upcoming months. Hence, the pressure on the BOE should mount, explaining much of the strength seen in the British pound recently.