Further evidence came out yesterday of how inflation is back with a vengeance, producing the kind of numbers not seen since the 1970s and 80s, and raising questions on how wealth can be protected in such an environment.

Yesterday, official figures showed that UK consumer price inflation rose by 9 per cent in April from a year earlier. There is a toxic brew of supply chain disruptions, high central bank money printing (“quantitative easing”), pandemic lockdowns, net zero energy policy and Russia’s invasion of Ukraine – an important food producer. Central banks such as the Bank of England face a big challenge in working out how much of this inflation problem is down to “one-off” factors and how far inflation expectations are becoming embedded. Those who are able to remember the 70s and 80s know that inflation is a very difficult entity to kill without economic pain. A German central banker once famously said that inflation is like toothpaste – it is hard to put it back into the tube.

Here are comments from a variety of quarters on the numbers:

Julian Jessop, economics fellow, the Institute of Economic Affairs, a think tank
The jump in consumer price inflation to 9 per cent in April was not quite as bad as some had feared, but the soaring cost of living is still extremely worrying. Without more action from both the Bank of England and the government, this crisis could still get worse. It is the Bank of England’s job to worry about the overall level of inflation. Most commentary on today’s data is focusing on the individual prices that are rising the most, notably the cost of energy. But monetary policy has also been too loose, for too long.

Central banks may not be able to do anything to prevent external shocks, such as the war in Ukraine or the jump in global food prices, but they can keep monetary growth under control, so that higher inflation in some sectors is offset by lower inflation elsewhere.

Strong and decisive action can also help to ensure that inflation expectations remain low. In contrast, the Monetary Policy Committee’s sluggish response has undermined credibility, and increased the risk that a temporary jump in inflation will persist for longer. What’s more, lower expectations for inflation in the future can also reduce inflation now. If firms are more confident that higher inflation will be temporary, they are more likely to absorb cost increases rather than pass them on.

In the meantime, there is more that the government can do to protect the most vulnerable. The Chancellor might still hope that he can wait until the autumn before taking any further action. After the hike in April, domestic energy bills are at least now capped until October. In the meantime, there is already more help coming in July, when the threshold for paying National Insurance is increased (a tax for low earners).

However, the cost of living crisis has now spread to food prices, and inflation is likely to remain higher for longer than anticipated in the Spring Statement. Consumer confidence is also so fragile that it may be too risky to delay the announcement of additional help until the autumn.

Silvia Dall’Angelo, senior economist, Federated Hermes
Overall, inflation has become more pervasive, underscoring a further deterioration of the cost-of-living crisis in the country.

In the coming quarters, stagflationary dynamics will become more pronounced for the UK economy. Inflation is likely to remain sticky at about current levels for the rest of the year, reflecting external and, to a lesser extent, domestic price pressures still in the pipeline. The exogenous price shock concerning energy and food commodities will continue to feed through into consumer prices – in particular, another large adjustment to the cap for utility bills is set for October. Meanwhile, a tight labour market will continue to stoke short-term wage pressures. At the same time, demand is set to slow sharply over the coming quarters, reflecting the squeeze to real incomes from high inflation itself, fiscal and, to a lesser extent, monetary tightening.

Our base case is that stabilisation in energy prices, base effects, some easing of global supply constraints and, crucially, the slowdown in demand will all contribute to drive inflation down over 2023. It will remain above target however, given the elevated starting point. Policymakers in the UK will have a hard time calibrating the right policy mix to address the extreme short-term growth-inflation trade off they are facing. Stagflationary dynamics might pave the way to a recession that would eventually tame inflation the hard way.”

Daniele Antonucci, chief economist and macro strategist, Quintet Private Bank (the parent company of Brown Shipley)
The UK price level jumped by a huge 2.5 per cent month-on-month in April. The key driver is energy, as the rise in the household energy price cap by some 50 per cent allowed the recent surges in global energy prices to pass through to consumers. On an annual basis, CPI inflation increased to 9 per cent in April from 7 per cent in March – a touch below expectations, but likely the highest rise since the early 1980s.

As UK regulators raised the price cap, electricity, gas and other fuels rose by 47.5 per cent on a monthly basis and 69.5 per cent annually – this alone added 2.5 percentage points to headline inflation.

The source of the inflation spike is important here. The inflation surge is mainly due to a combination of the global supply-chain strains, which emerged during the pandemic and worsened after the strong bounceback once the lockdown was lifted, and recent spikes in commodity prices triggered by Russia’s invasion of Ukraine.

Modupe Adegbembo, G7 economist, AXA Investment Managers
We expect this month’s print to be the peak in inflation and expect a slow descent from this peak over the coming months, but this is sensitive to the evolution of gas prices ahead of the October price cap. This inflation outlook continues to weigh on households and businesses, which we expect will be one of the largest hits to real income impacting the economy. We now expect inflation to average 7.4 per cent and 3.5 per cent in 2022 and 2023, respectively.

We continue to expect that the Monetary Policy Committee (MPC) will hike rates in their next meeting in June and once again in August bringing rates to 1.50 per cent. We expect them to then pause their hiking cycle as demand weakens and slack begins to emerge in the labour market. This remains far short of market expectations, which expect rates to reach 2 per cent by the end of 2022.  

Charles Hepworth, investment director, GAM Investments
UK inflation certainly sees no sign of slowing down, recording a 9 per cent increase in April year-on-year. This is now the highest reading in over 40 years. CPI rising to 9 per cent in April from 7 per cent in March is almost exclusively down to the surge in fuel prices, as both energy price caps were lifted by the government and the global energy market ratcheted higher with Putin’s actions in Ukraine.

Inflation has taken firm roots in the UK economy, and is probably becoming entrenched, with food, drinks, hotel and restaurant prices showing sharp increases. On the producer price front, factory gate prices rose 14 per cent in April with input prices rising at a record 18.6 per cent. The Brexit six-year-old hangover continues. You could almost forgive Bank of England (BoE) Governor Bailey pleading to employers not to raise wages following yesterday’s employment numbers. Fears that a wage growth spiral higher would keep inflation beyond their control is spot on. Arguably, the BoE allowed inflation expectations to skyrocket, with their now debunked ‘transient’ narrative last year. It seems that the Bank is now reaping what it didn’t sow. Tough times lie ahead for the UK.

Azad Zangana, senior European economist and strategist, Schroders
The main risk for the UK economy is that the largely external price shock caused by higher energy prices caused domestic prices to respond, followed by wages. As shown from the latest labour market report, the supply of workers is very limited. The release showed the unemployment rate falling to just 3.7 per cent – its lowest level since 1974. This will have contributed to the annual rate of total private sector pay jumping to 8.2 per cent.

However, the single metric which highlights the extremity of the labour market shortage is that for the first time on record, there are more unfilled job vacancies than unemployed people available to fill those jobs.

In the past, higher demand for labour would have been met by migrants, particularly from the EU. Brexit has now heavily curtailed that option, making it easier for domestic workers to demand higher wages. The risk of course is that higher wage growth leads to ongoing strong demand, and further inflation. This could lead to a stagflationary environment, akin to the 1970s. The only way to bring inflation under control back then was to aggressively raise interest rates and cause a recession.

The Bank of England will of course want to avoid a recession, but even with its own forecast, it has inflation peaking at around 10 per cent at the end of the year, and the economy contracting. The Bank is likely to continue to raise interest rates this year, hoping that it can reduce domestic demand and ease wage pressures without causing too much damage to the economy.