The headline on the BBC website this afternoon is "Pound falls after surprise dip in inflation". It is important that students taking the A2 economics papers next month are able to give current figures for the macroeconomic indicators, so they should take note of today's CPI inflation figure for April, which is down to 2.4% from 2.8%.
They should also note the reasons - weaker commodity prices and oil in particular, with petrol and diesel prices contributing half of the drop in inflation. Slow earnings growth is also expected to contribute to the outlook for inflation remaining closer to the 2% target than it has been since the end of 2009 - which also suggests that the remaining inflation is not due to demand-pull pressures, but to cost-push.
But can they explain why and how the announcement of a lower rate of inflation has led to a weaker pound? It is not enough, in an essay, simply to state that this cause-and-effect has taken place; in order to gain good marks for analysis, it is essential to trace the process by which one leads to the other. This article from Reuters should give the clues that they need to fill the gaps on the table below ...
What are the costs of a higher average rate of inflation? With CPI inflation staying persistently above target over much of the last six years, to what extent has this undermined UK macro performance? Or has a little extra inflation and an ultra-loose monetary policy (0.5% base rates and £375bn of quantitative easing) been a price worth paying to avoid an ever deeper recession and depression?
"The high retail price inflation seen in recent years has outpaced earnings and eaten into household spending power. Ongoing relatively high inflation will continue to impact consumer spending, especially with unemployment unlikely to fall quickly. The effect on consumer spending will vary between different demographic groups and product sectors, causing companies to revisit their offerings."
Here is the link to the Ernst and Young report - click here
He's back but he's still angry! In this latest version of The Angry Economist, our favourite curmudgeonly analyst wants to know students' opinion on George Osborne's economic policies - no wonder his blood pressure has risen!
This simple Powerpoint resource is aimed at getting your students to analyse and evaluate economic policies - 8 of the Chancellor's policies are presented and the Angry Economist randomly picks a macro-economic objective to consider. All you have to do is get 8 volunteers from your class to do the analysing - a great 10 minute activity whilst revising for the up-coming macro exams at either GCSE, AS or A2 level.
Here is a list of the policies the Angry Economist wants students to look at (you may wish to recap on them before you start the activity):
- Reduce Government debt
- Increased number of private sector jobs
- Increased allowance before Income Tax needs to be paid
- Cut Corporation Tax
- Set up Regional Growth Fund
- Funding Lending Scheme
- Deregulating some planning rules
- Frozen Council Tax
Of course, the beauty of this resource is that you can change any of these policies to whatever you want them to be.
Click on this link to download the Angry Economist 2.
PS. Click on this link to have a look at the original Angry Economist.
Keeping actual and expected inflation under control is one of the key objectives of macroeconomic policy. The rate of inflation in the UK is calculated using the Consumer Price Index. For many years data on the Retail Price Index (RPI) has also been published but from March 2013, the RPI is no longer regarded as an official national economic statistic. Please be aware of this when writing your exam. This revision blog provides updated figures on the latest CPI data for a variety of countries - it reminds us that inflation rates vary quite a lot. Think about what persistent differences in inflation rates can have on macroeconomic stability and performance.read more...»
Here's a 5 to 10 minute activity for your post-Easter classes on macro-economic objectives - The Angry Economist! The design is very loosely based upon the 'Angry Bird' game.
You will need up to 8 volunteers to answer the 'Angry Economist's' questions.
Each student can choose a Government policy named on-screen and then the Angry Economist randomly chooses a macro-economic objective. The student has to to apply their knowledge and understanding of their chosen policy to the macro-economic objective shown.
The screen encourages the student to analyse and evaluate their own answer.
Use this link to access the resource. Give it a go!read more...»
Economic commentators love their acronyms and abbreviations - they come in handy when reaching character capacity limits on a tweet and also for students fighting the exam clock to complete a timed essay. Two new ones have come to my attention in recent days. What does ZIRP and PLOG mean to you?read more...»
This 10-question revision quiz focuses on inflation.
Does that reflect your changing habits over the last year? The ONS have released news of changes to be made to the official representative basket of goods whose prices they check to measure inflation. Each year they update the 700-or so items in the basket so the contents accurately reflect current trends in spending. So the items added and removed provide an interesting view of the goods and services which are most important to us, and how we are choosing to spend our disposable income.
Are you following important macroeconomic developments in Japan? The new government of Shinzo Abe is reforming monetary policy - including a change to the inflation target - and undertaking more aggressive fiscal measures. Will it work in lifting the Japanese economy to a higher growth plane after two decades and more of sluggish growth and the debilitating effects of price deflation?read more...»
An updated glossary of key terms for AS macroread more...»
Here are collections of regularly updated resources on two key AS macro topics, inflation and unemployment
In this 60 second summary, David Mitchell explains that Bill Phillips' curve historically described an inverse relationship between the rate of unemployment and the rate of wage (and therefore price) inflation - but since his analysis became popular the relationship has changed.read more...»
One of the stock answers students are encouraged to make when describing the pitfalls of high inflation is its link with increasing the burden on the poorer sections of society. The argument goes that periods of high inflation are not traditionally matched by an equal increase in benefit payments. This has not been the case in recent years in the UK - benefits have been rising at a faster rate than inflation, even during its upwards blip of recent years. Now the argument has reverted to one of how the cost of benefit payments have become excessive for a Government attempting to reduce its deficit and bring spending under control. Reports by the BBC and covered by the Guardian today have suggested that the Government is about to break this link.read more...»
Paul Krugman made an impassioned plea for a reversal of austerity policies in a talk to a packed Peacock Theatre at the LSE in London last night - I was live tweeting the event and I have brought together these tweets and some other comments together with some of the charts in his talk. I have also drawn on the live tweets of Stuart Foster whose excellent twitter feed can be found here: @econbant
The slides from Krugman’s talk at the LSE can be found here
Paul Krugman talks to Evan Davis on the Radio 4 Today programme: Click here Niall Ferguson provides a contrary view here: ‘You can’t solve debt with more debt’ See also: European Commission supports UK deficit-cutting course (BBC news)
Productivity is a key measure of supply-side economic performance and labour efficiency.read more...»
Inflation is a sustained increase in the cost of living or the average / general price level leading to a fall in the purchasing power of money. The opposite of inflation is deflation which is a decrease in the cost of living or average price level.read more...»
A selection of key terms on monetary policy and inflationread more...»
This is a new revision presentation which provides an overview of inflation and the business environment. The measurement and causes of inflation are outlined together with notes on the potential impact of inflation on business.read more...»
The international price of crude oil has been rising strongly in recent weeks and threatens to be an external factor driving an already weak Euro Zone and UK economy back into recession.read more...»
Three years ago Andrew Sentance was one of the 9 members of the MPC who voted for the extraordinary measures of bringing base rate down to 0.5% and creating the new stimulant of Quantitative Easing in an attempt to bring the economy around. In today’s Sunday Telegraph he recalls why he voted for them at that time, and explains why he thinks that they must be gradually withdrawn now from an economy which has become dependent on them for its survival.read more...»
The super-charged growth in China has brought about a rise in inflationary pressures and is a good example of the possible conflicts between rapid economic expansion and rising costs and prices. The Chinese government’s inflation target is 4% but inflation is a growing worry for the Chinese government – after some mild deflation in 2009 there has been acceleration in the consumer price index. Agricultural prices have been a key driver of inflation with food costs up 12% in the year to March 2011.
For many commentators high inflation in China is a symptom of an over-heating economy with an unsustainable credit and property boom. Another factor behind high inflation is that Wages are rising fast in China – many economists believe that China has hit a point in its development at which demand for labour starts to grow faster than supply, creating labour shortages and pushing up salaries. This is known as a Lewis Turning Point.read more...»
Just as the Monetary Policy Committee have been saying for a while, inflation is starting to fall back towards their target. The fall to 4.2% in December is rather sharper than expected, and is the biggest monthly fall since April 2009. With further falls almost certain in the next few months as the VAT rise and energy price hikes roll out of the 12-month figures, analysts have commented today that this will leave the opportunity for the MPC to inject further rounds of QE into the economy with less fear of triggering too much demand-pull inflation.read more...»
Geoff has kindly made available for download his presentation made to students at Dulwich College recently in which he analyses the prospects for the UK Economy in 2012. A Slideshare-streamed version is also provided below.read more...»
The CPI headline inflation rate has fallen to 4.8%. This BBC chart shows recent changes in the rate of increase of the general price levels using CPI and RPI indicators.read more...»
It’s here! PNC Wealth Management, have produced their 28th annual index of the true cost of Christmas, calculating the cost of giving of all the gifts in the Twelve Days of Christmas, and then the change in the price compared to last year, to give the annual rate of inflation for Christmas. This year they have an animated train ride that takes you through a snowy landscape, with various games on the way - the maids a-milking one is brilliant! The journey, and the links to information about how the index has fluctuated over the years and where on earth they find the prices of swans a-swimming or lords a-leaping needs a bit of investigation before you introduce it to a class, but is worth it and great fun for a Christmas lesson.
What follows is a list of the ten video clips I use when teaching inflation as a topic.
They are a mixed bunch. Some are useful for class use, others work as pointers to a series of video clips from one producer. What I’ve tried to avoid, however, are links to the teach yourself Economics resources (though obviously they have their place) that are out there.read more...»
I am teaching the background to consumer / retail price inflation in the UK this week and making use of a selection of up to the minute data charts. Here they are as a downloadable powerpoint file for colleagues who might find them useful on whiteboards or as handouts for annotation and discussion.
A good example to discuss of government intervention into agricultural markets - in this case Thailand’s government have intervened in the market to buy unmilled rice at 15,000 Thai baht per metric tonne, which is a 50% premium on the current market rate. A good discussion of the possible impacts can be found, with a discussion of the economic rationale/consequences of it, here.
JCT is no longer president of the European Central Bank and he leaves, after eight years at its helm, with as many detractors as there are supporters. The ECB is widely perceived as being ‘genetically’ close to the German
Bundesbank following the neo-classical school where inflation is the route of all problems and so needs to be controlled no matter the cost.
We´re going to be looking at this part of the syllabus very soon and the two graphics below from here and here look at how the US market for smartphone operating systems is split between the major firms and also how global market share for mobiles as well as smartphones is split.read more...»