by Wolf Richter
“It’s appropriate” that markets price in “a significantly earlier path of tightening than they did previously.”
Inflation in the UK has shot from below 1% earlier this year to 3.2% in August, the highest in 10 years, with core inflation – excluding food and energy – hitting 3.1%. OK, there was some “base effect” due to the very low inflation rate a year earlier. But the current spike of inflation, as measured by the last six-month average inflation annualized, is already at 4.5%, unrelated to the base effect. An annual inflation rate of 4.5% would be the highest in decades. In September, the Bank of England hiked its forecast for annual inflation by the end of the year to over 4%.
While this is still lower than the red-hot inflation in the US, it is way above the Bank of England’s target of 2.0%.