Prices in the UK have risen above the Bank of England's target - is this something to worry about?

ITV News Business and Economics Editor Joel Hills reports on why businesses like hairdressers are upping their rates

The Bank of England’s job is to keep prices stable and to take action if they are not. It expected inflation to pick up as the economy reopened but the headline rate in May (2.1%) was slightly above target (2%) and slightly above what most economists were expecting. As restrictions eased, people have run out and spent some of the money they’ve accumulated in lockdown.

The price of a haircut had risen sharply, so too have clothing prices.

Most noticeably, the price of filling up the car has jumped significantly - pump prices are up 18% on a year ago.

ITV News Business and Economics Editor Joel Hills explains the key judgement the Bank of England now has to make

Inflation in the housing market is rampant, thanks in part to the chancellor’s stamp duty cut. Prices in north-east England (up 16.9%) and Wales (up 15.6%), in particular, are on fire - what could possibly go wrong? But not all prices are heading north - food prices are falling and core inflation looks stable. Many of the prices in the headlines have risen from a low base because of last year’s recession.

The key judgement the Bank of England has to make is whether this inflation is down to temporary, erratic, short-lived factors or if the upward pressure on prices looks persistent.

The cost of a haircut has increased. Credit: PA

The central banker’s nightmare is a wage/price spiral - where price rises feed into wage rises which feed into price rises and so on. There’s no sign of that yet.

The latest evidence shows that regular pay (excluding bonuses) was up by a feisty 5.6% between February and April on the same period in 2020. Companies in some sectors of the economy are reporting staff shortages - in many cases because of Covid-19 border restrictions and Brexit. Hauliers are the latest to shout about recruitment problems.

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Meanwhile producer price inflation has surged. The cost of raw materials has soared by 10.7% in the last 12 months - metal prices in particular - and the impact is being felt in factories around the UK. Although, there’s currently little evidence that these price increases are being passed through to consumers. We’ve had bouts of above target inflation before - in the periods after the financial crisis and the referendum on EU member in 2016. In both instances the Bank of England “looked through” the headline numbers and sat on its hands. It’s too soon to say if it will need to intervene and raise interest rates this time around.