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Charles Stanley: households are feeling the strain of inflation
Monthly inflation data reports give all sorts of information to policymakers, particularly those involved in setting interest rates. That in turn has a knock-on effect on various other important areas of your finances, like mortgage rates or the performance of the stock market.
But inflation is felt by everyone far more keenly and directly than this, in real-time, because it is a direct measure of how much we pay for the goods and services we use everyday.
The jump in inflation during April, to 3.5% from 2.6% in March, reflected a ramping up of these costs.
“Household finances are under renewed strain,” says Rob Morgan, chief investment analyst at Charles Stanley. “Although average wages have been trending higher, mounting expenditure on bills and groceries, plus higher mortgage costs for many thanks to higher interest rates, means extra income is typically spent on essentials rather than saved.”
April’s figure was elevated by the impact of increased employer costs, such as higher minimum wages and National Insurance payments. The hope is that the impact of these will fade over time.
“While services inflation stands to remain elevated in the short term thanks to increased employer costs, it is a factor that should fade as the months roll by as companies scale back hiring and restrain pay where possible,” says Morgan.
Read more about what inflation is and how it affects you here: What is inflation?
Why May inflation might be lower than expected
While the BoE expects inflation to come in at 3.4%, economists at Oxford Economics are expecting CPI to come in slightly lower at 3.3%.
“April’s surprisingly strong reading in the services category should partially unwind in May’s data,” said Edward Allenby, economist at Oxford Economics. “This is because the outturn was artificially boosted by an unusually large increase in vehicle excise duty sub-category, which the Office for National Statistics has since revealed was due to an error in the data supplied by the Department for Transport and will be corrected in May’s release.
“Furthermore, April’s rise in services prices was also exaggerated by a very high reading in the air fares sub-category, as the month’s collection dates coincided with the Easter holiday unlike in 2024. The upward pressure from this effect should also unwind in May’s data. We expect minimal movements in the other major inflation categories.”
What is the Consumer Prices Index?
The Consumer Prices Index (CPI) is the official measure of inflation that policymakers and analysts tend to focus on. Most central banks, including the BoE, target a CPI rate of 2%.
It isn’t the only measure of inflation, though. There is also the Retail Prices Index (RPI), which includes costs of home ownership as well as the prices measured by CPI.
There is also the Consumer Prices Index including owner occupiers’ housing costs (CPIH). This measures inflation with the costs of owning, maintaining and living in a home included – as such, it has similar characteristics to RPI. While the methodologies used to calculate each are currently different, the two will be fully aligned from February 2031.
Read more about the different inflation metrics here: CPI versus RPI inflation.
When is May UK inflation data announced?
The Office for National Statistics (ONS) will release May inflation data tomorrow morning (18 June) at 7am.
Join us live then for breaking news on the headline figures as well as deeper analysis of the report.
What do analysts expect for UK inflation in May?
Analysts at the Bank of England (BoE) expect the headline CPI figure to come in at 3.4% for May, down slightly from its April reading. The consensus expectation among analysts polled by FactSet is slightly higher at 3.5%.
That suggests inflation will remain well above the 2% figure that the Monetary Policy Committee (MPC) targets.
BoE forecasts currently project inflation to increase to 3.7% in September. However, inflation is then expected to fall to around 2.4% by Q2 2026.
Good afternoon and welcome to MoneyWeek’s rolling coverage of the latest UK inflation figures.
With the release of May inflation data scheduled for tomorrow morning (18 June), we’ll bring you live previews of the announcement, as well as rolling coverage and reaction after the release.
