In the newest sign that the Brexit vote is contributing to pressure on living standards, the United Kingdom has the highest rate of inflation among the top economies of the world.
According to the Organisation for Economic Co-operation and Development, the heightened cost of importing fuel and food is forcing prices to increase at a faster rate than anywhere in the G7 group of leading global economies. The United Kingdom is only behind Mexico, Turkey, and the eastern European states of Estonia and Latvia in the club of 35 developed nations.
The annual growth in prices in the United Kingdom bounced to 2.9% in August from 2.6% in July, reaching a four-year high in the consumer price index (CPI) reached in May earlier in 2017. That exceeds the average 2.2% increase in prices across the OECD for the same month.
The United Kingdom ranked first for inflation among the G7, which comprises Canada, US, Germany, France, Japan, and Italy. The increase in prices was also above the averages for the wider European Union, the euro area, and the G20 nations.
Turkey had the highest rate of inflation at 10.7%, followed by Mexico at 6.7%. Israel was the only country to record decreasing prices, at -0.1%. Major central banks around the world are targeting an inflation rate of 2% to encourage their economies to develop at a pace that is sustainable.
The Paris-based organisation determined that energy price inflation stimulated to 5.9% in the year to August, compared with 3.7% in July. Food price inflation also grew, albeit at a pace that is slower, to 1.8% in August, compared with 1.7% in July.
Excluding food and energy, inflation was stable across the OECD nations at 1.8% for the fourth consecutive month.
The numbers illustrate the reliance of the United Kingdom on imports, which have become more expensive since the Brexit vote sparked the devaluation of the sterling. The pound endures at about 10% below its level immediately before the referendum.
Prices online and in non-food stores and grew at the strongest annual growth rate since 1992 in August, even though shoppers proceeded to spend against the forecasts of City economists. The monetary policy committee of the Bank of England estimates that CPI will peak above 3% this month, prior to falling over the coming months.
Threadneedle Street is thinking about whether to increase interest rates for the first time after a decade from as early as next month. Increasing the cost of borrowing may help to lower the rate of growth in prices, as it should limit the amount of money that is available in the economy to purchase goods.
However, a rate increase also risks undermining economic growth by removing cheap money that is available to businesses and consumers. The Bank has been warned regarding increasing interest rates among weak signals for economic growth.
The OECD estimates that Italy, Germany, and France will grow faster than the United Kingdom amid scepticism regarding Brexit, which is sapping business investment and hitting consumer confidence. The group of wealthy nations calculates that the GDP growth of the United Kingdom will fall from 1.6% in 2017 to 1% in 2018.