by Andrew Sullivan
July 15, 2020
Reactions to the first uptick since lockdown
Laura Suter, personal finance analyst at investment platform AJ Bell, comments on the latest inflation figures from the Bank of England:
“Inflation edged upwards slightly in June – the first increase this year – with CPI rising from 0.5% to 0.6% as lockdown eased and the usual seasonal sales of items went out the window. Toys and games, clothing and some pharmacy items all served to push up prices in the month.
“Clothing prices pushed up inflation, as they would usually follow a pattern of lots of buying before summer sales hit in May and June. The coronavirus lockdown trampled on this usual pattern of buying and so while lots of clothes are on sale at the moment, they haven’t seen the big one-month fall in prices in June they usually would. Bizarrely contact lenses were also a reason behind price rises, along with some other chemist items, such as cough syrup.
“The inflation rise in June doesn’t necessarily mean that it’s only going to head upwards this year. As we see the effects of lockdown easing further we’d expect to see some increases in prices. But everyone from the Bank of England to the Office for Budget Responsibility expects inflation to fall further this year, before rebounding slightly next year. Once the fall in the oil price and the cut to energy prices from Ofgem’s price cap has filtered through the system, we should see inflation start to meaningfully pick up again. However, so much could happen with the pandemic and economy between now and then that even the most avid betting man wouldn’t take on the gamble of predicting where inflation will be this time next year.
“Some doubt has been cast over how accurate the ONS’s inflation figures are, as it still can only collect prices for 85% of the items in its virtual basket. A number of leading research groups think inflation is actually running much higher than the official figure, as what we’re all spending our money on has changed dramatically. Why include a price for a holiday in the inflation basket, for example, when none of us are going away at the moment?”
Rachel Winter, Associate Investment Director at Killik & Co, said: “June is the first month of 2020 where we have seen the impact of lockdown easing on the inflation rate. Non-essential shops were starting to open, people began heading back to work and the hospitality industry prepared to reopen. While it still sits well below the government’s 2% target, it does point towards a continued upward trend – even if slight.
“Over the next month or two, without looking too far ahead, we can expect to see increased activity in hospitality, retail and travel. Holidays are being booked and airlines restarting flights, though spending on these trips is far below normal levels. Even with Rishi Sunak’s incentives, lockdown will have undeniably changed the spending attitudes of many and it will be a while before people are as willing to dig deep in their purses. This data is one to watch, as the detail behind the inflation figures tells us more about which sectors are the winners and losers of the Covid-19 fallout.”
This article appeared first on IFA Magazine