Inflation has been subdued across the world in recent years despite very expansionary monetary policies being pursued by all central banks. In the UK inflation is well below the Bank of England target of 2% and in August was just 0.6% on the CPI measure. It has rocketed to 1% in September.
So far there is only anecdotal evidence that the fall in the value of the pound is responsible, but import prices will rise with the near 20% fall in the value of the pound since June. This would cause cost-push inflation and will compliment the demand-pull inflation that the Bank of England are encouraging by their recent reduction in interest rates to 0.25%.
The article, again from the BBC, looks at the effects higher inflation might have on households. It points out that when inflation reaches a rate higher than wages growth then real incomes start to fall, making people worse off. It also notes that those on benefits, many of which are frozen in value until 2020, also lose out.
One group that is protected are those who receive the old age pension (that is everybody in the UK who are old enough, it is not means tested). The old age pension goes up by at least 2.5% a year, or inflation on CPI or wages growth - whichever is higher. This protects the old against an important cost of inflation.
Note the link in the article to 'winners' from inflation.
The costs and benefits of inflation is relevant to everyone. This provides a very useful survey of the issue facing people today with low inflation and the impact of rising inflation.
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