{"id":742973,"date":"2026-06-17T20:18:09","date_gmt":"2026-06-17T20:18:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/742973\/"},"modified":"2026-06-17T20:18:09","modified_gmt":"2026-06-17T20:18:09","slug":"surprisingly-benign-uk-inflation-data-signals-a-softer-iran-war-hit-than-feared-inflation","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/742973\/","title":{"rendered":"Surprisingly benign UK inflation data signals a softer Iran war hit than feared | Inflation"},"content":{"rendered":"

As soon as Iran choked off oil supplies through the strait of Hormuz at the start of March, there were dire warnings about rocketing UK inflation and the drastic action the Bank of England<\/a> might take to rein it in.<\/p>\n

At one point, investors were expecting as many as three quarter-point rises in interest rates before the end of the year \u2013 a sharp turnaround from earlier forecasts of rate cuts.<\/p>\n

Yet since then a series of economic readings have come in better than forecast. Wednesday\u2019s news that inflation was steady at 2.8% last month<\/a>, is the latest evidence raising hopes that the real-world impact of the Middle East war on the cost of living could be more muted than first feared.<\/p>\n

Three months on from the start of the conflict, inflation remains well above the Bank\u2019s 2% target, and consumers have certainly endured rapid increases in the price of petrol. The cost of motor fuels in May was up an eyewatering 25% on a year ago, the Office for National Statistics (ONS) said.<\/p>\n

graph<\/a><\/p>\n

But May\u2019s inflation reading was unexpectedly benign \u2013 unchanged when economists expected a rise to 3% \u2013 and came after inflation fell by more than forecast in April.<\/p>\n

That suggests fuel price rises have so far failed to spill out more widely across the economy; indeed, food prices, which shoppers tend to watch closely, were actually down 0.1% month on month.<\/p>\n

The UK\u2019s path of inflation has mirrored that of the EU, despite some EU countries, including Germany, implementing fuel tax cuts to cushion the impact of price rises. US inflation surged to a three-year high of 4.2% in May \u2013 a record Trump shrugged off by insisting: \u201cI love the inflation.\u201d<\/p>\n

Economists responded to the weaker-than-expected reading by downgrading their UK inflation forecasts for the coming months \u2013 and casting doubt on the prospect of future rate rises.<\/p>\n

There may yet be worse to come: the impact of the higher price of fertiliser, for which the strait of Hormuz is an important transit route, and which relies on outputs from the Gulf, was always expected to play out over many months, for example.<\/p>\n

However, as the Bank of England governor, Andrew Bailey, has remarked, it also appears that firms lack \u201cpricing power\u201d to drive up inflation \u2013 in that they don\u2019t think cash-strapped shoppers would wear higher prices.<\/p>\n

That is in contrast to 2022, when Russia\u2019s invasion of Ukraine caused a surge in oil and gas prices at a time of strong consumer demand, pushing up inflation more broadly to a peak of 11.1% by November that year<\/a>.<\/p>\n

Andrew Bailey suggests that companies do not think cash-strapped shoppers would tolerate higher prices. Photograph: Hannah McKay\/Reuters<\/p>\n

As Andrew Wishart of Berenberg bank said in response to Wednesday\u2019s consumer prices data: \u201cThe downside surprise was due to lower food and goods prices than we expected, suggesting that firms lack the pricing power necessary to pass on the increase in their energy costs.\u201d<\/p>\n

The Bank\u2019s monetary policy committee had already been almost universally expected to leave interest rates on hold at 3.75% at their meeting on Thursday, and that forecast remains.<\/p>\n

In the face of above-target inflation most analysts still expect at least one interest rate rise this year, though markets are now betting that is more likely to happen in November than September.<\/p>\n

The hoped-for reopening of the strait of Hormuz after this week\u2019s announcement of a US-Iran peace deal <\/a>has already shifted oil prices to below $80 a barrel, eliminating the Bank\u2019s worst-case scenario. That means it may not be too long before the MPC starts to fret more about the downturn in the jobs market than rising prices. The next move may yet be a cut.<\/p>\n","protected":false},"excerpt":{"rendered":"As soon as Iran choked off oil supplies through the strait of Hormuz at the start of March,…\n","protected":false},"author":2,"featured_media":742974,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":["post-742973","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/742973","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=742973"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/742973\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/742974"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=742973"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=742973"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=742973"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}