Inflation Continues to Rise in the UK, Contrasting Other G7 Nations

The Organization for Economic Cooperation and Development (OECD) has reported that inflation is still rising in the UK, setting it apart from the rest of the Group of Seven (G7) wealthy nations. This finding makes Britain the sole country amongst the G7 where inflation is persistently increasing.

According to the OECD, year-on-year inflation within the G7 decreased to 4.6% in May, a drop from April’s 5.4%, reaching its lowest since September 2021.

Contrasting Trends Among G7 Nations

While most advanced economies observed a decrease in annualized inflation in May, including the U.S., Canada, France, Germany, Italy, and Japan, the UK emerged as an exception.

The OECD revealed that UK consumer prices across all items increased by 7.9% in May compared to the previous year, a slight uptick from 7.8% in April. This distinct inflationary trend occurs at a time when several major central banks are contemplating ending their aggressive interest rate hikes as prices begin to cool down, even though inflation remains high.

A Higher-Than-Expected Interest Rate Hike

The Bank of England shocked many last month when it raised interest rates by 50 basis points to 5%, a more significant increase than anticipated. This was the BOE’s 13th consecutive rate rise, taking the base rate to the highest level since 2008.

This abrupt action has intensified worries over a potential mortgage crisis, diverging from other major central banks that have managed to slow or pause interest rate hikes.

Comprehensive Measurement of Inflation

The OECD uses the national consumer price index for the UK, which includes the costs of owning and living in a home, providing its most comprehensive measure of inflation.

The organization also employs a separate measure of CPI, based on a harmonized methodology developed by Eurostat. This allows for international comparisons. In the case of the UK, this headline CPI remained unchanged at 8.7% in May from the previous month.

The OECD forecasted in early June that the UK will register annual headline inflation of 6.9% this year, the highest level amongst all advanced economies.

OECD Headline Inflation: A Steady Decline

The consumer price index measurement of year-on-year inflation decreased significantly to 6.5% in May, a decrease from 7.4% in April. This means headline inflation in the OECD is now at its lowest level since December 2021.

From April to May, the OECD reported inflation declined in all observed countries, except in the Netherlands, Norway, and the UK. Across all OECD countries, the group said inflation rates ranged from less than 3% in Costa Rica, Greece, and Denmark to more than 20% in Hungary and Turkey.

Interestingly, energy inflation plunged to -5.1% in May compared to the previous year, down from 0.7% in April.