Slumpflation? UK inflation jumps to 3.5%
A bump in the night or a worrying sign that higher inflation will impose deal cuts on the real incomes of people taking pay freezes or the millions of savers being offered derisory interest rates on their deposit accounts? Consumer price inflation jumped to an annual rate of 3.5% last month prompting the Governor of the Bank of England to unlock the quill pen and write a letter of explanation to the government.
The reasons behind the latest surge in inflation look clear cut
1/ The lagged effects of the fall in sterling on import prices
2/ Much higher oil and gas prices and rising import prices for metals and other raw materials
3/ The effects of the reversal of the temporary cut in VAT (nb VAT is likely to rise to 20% by year end)
4/ Less discounting in the January 2010 sales compared to the same time last year when the UK retail sector looked close to melt-down!
And we can always blame the snow ........!!!!!
5/ Snow last month raised the price of certain seasonal vegetable prices, with cauliflowers rising by the highest amount since at least 1996 and the cost of carrots doubling
Snow as the cause of a spike in inflation .... do you get my drift?
Expect inflation to come down in the months ahead - the pricing power of retailers and manufacturers remains very weak and there is probably a substantial margin of spare capacity in the economy following the 5% decline in real output last year.
Britain is no longer a high inflation country despite the gloomy predictions of those concerned about the size of quantitative easing.
Economist: Storm before the calm
Stephanie Flanders considers the latest inflation figures (BBC news)
Inflationary pressures in China
This BBC news video provides an interesting window on the pressures for wages to rise in the booming city of Shanghai. The impressive rebound in Chinese economic growth is driven by the strength of the underlying growth forces in the economy together with the impact of the huge fiscal stimulus. But for many young professionals growth is causing the cost of living to surge - food and property prices are the main concerns. Inflation is a genuine risk for the Chinese economy - what might the Chinese authorities do about this?
read more...»Metal prices on the rise again
What do the following businesses have in common?
Anglo American
Antofagasta
BHP Billiton
Eurasian Natural Resources
Fresnillo
Kazakhmys
Lonmin
Randgold
Rio Tinto
Vedanta
Xstrata
AS Macro: Sterling and the UK Economy
The Bank of England estimates that the pound has depreciated by around 25pc since mid-2007. And in 2008-09, sterling registered an even larger depreciation against the dollar than its 1992 exit from the European Exchange Rate Mechanism. In trade-weighted terms, the decline was the biggest since figures were first calculated in the early 1980s.
The fall in the external value of the pound has many possible consequences for an open economy such as the UK. At AS level it is important to identify these effects and explain them using an AD-AS framework. Then support your answer with some good evaluation points and (where possible) supporting evidence.
Rated: 
(5/5), based on 2 reviews
Rethinking the mantra of price stability
In a break with the consensus that has enveloped policy makers in institutions such as the International Monetary Fund, the IMF’s Chief Economist Oliver Blanchard has written a new paper (Rethinking Macroeconomic Policy) that suggests that a relaxation of tough inflation targets and acceptance of slightly higher average inflation is needed to give macro economic policy more traction in the years ahead.
For A2 economists this is an important policy debate. Are the economic and social costs of average inflation of say 3 to 4% much higher than achieving consumer price inflation of 2%?
Here are some links to coverage of the paper.
Guardian: More inflation may be better after all, says IMF
Paul Krugman: The Case For Higher Inflation
Economist Blog: Reorienting macroeconomic policy
Euro Land and Optimal Currency Areas - A Valentine’s Day Massacre
In A2 macro when we teach the economics of a single currency, it is not long before the idea of an optimal currency area makes an appearance. The crisis facing Greece and a number of other Euro Zone countries has laid bare the structural flaws in the monetary union project. Euroland is a long way from being an optimal currency zone.
Evolution of an Economic Recovery
Where will a sustained economic recovery come from for the British economy? The Governor of the Bank of England talked last week of a battle of strength between the tailwinds from the recent macro economic policy stimulus measures set against the headwinds from continued financial fragiity in the world economy. There are some positive signs:
read more...»Assorted Links (11 Feb): Focus on the UK economy
5 links on recent developments in the UK economy
1/ Volterra February 2010 UK economic insight - excellent short insights into recent data including the effect of the depreciation and recession on the UK trade balance
2/ Bank of England Inflation Report - the February 2010 report can be found here
3/ Small businesses lead manufacturing out of recession - a super piece from Lucy Saunders on the key role played by smaller, flexible and innovative businesses in UK manufacturing.
4/ OECD report on social mobility - there have been plenty of news stories on relative poverty and social immobility in recent weeks. This is a new OECD report on the issue. It is easier to climb the social ladder and earn more than one’s parents in the Nordic countries, Australia and Canada than in France, Italy, Britain and the United States - there are long term consequences for innovation and the underlying rate of economic growth
5/ Guardian - British economy faces slow recovery
Mervyn King on Tailwinds and Headwinds
Mervyn King delivers the latest Inflation Report from the Bank of England and focuses on the strength of two forces:
1/ The tailwind of the policy stimulus from monetary and fiscal policy
2/ The headwind of the continued deleveraging in the financial system
It is a good analogy to use and one that students should be able to latch onto as they grapple with their macroeconomics.
This BBC news video provides a good overview of the Bank’s current thinking. In it the Governor explains why the Bank will - for the third time - expects to write to the Chancellor to explain an inflation overshoot. And he comes out with a good quote “Monetary policy can do little to affect short-term changes in inflation” ....... instead it has more leverage on the growth of total spending in the economy which (relative to the supply-side capacity of the economy) affects demand-pull inflationary pressures during the economic cycle.
Focus on the National Minimum Wage
This blog provides some updated links on the minimum wage - a government intervention in the labour market.
read more...»Most Popular Topic Tags on the Economics Blog
recession, demand, unemployment, economics, prices, price, inflation, investment, costs, profit, trade, employment, debt, supply, downturn, confidence, euro, gdp, competition, risk, capacity, china, production, incentives, exports, oil, expectations, manufacturing, sterling, housing, pay, food, profits, banks, tutor2u, globalisation, mortgage, property, revision, retailers, slowdown, borrowing, usa, innovation, emissions, dollar, deflation, airlines, supermarkets, entrepreneur, monopsony, efficiency, productivity, google, elasticity, moodle, aqa, keynes, welfare, consumption, externalities, wealth, saving, opec, economist, strategy, depression, economic cycle, protectionism, tim harford, stocks, inequality, competitiveness, jobs, carbon, depreciation, credit crunch, poverty, monopoly, infrastructure, cars, bank of england, vle, environmental, carbon trading, spare capacity, budget deficit, environment, subsidy, eu, wages, market failure, management, regulation, evaluation, losses, behavioural, government failure, steel, output gap, climate change, construction, macroeconomics, imports, oligopoly, japan, bbc, skills, cpi, commodities, farming, newsnight, paul mason, intervention, fiscal stimulus, currencies, population, stagflation, itunes, contestable, lse, agflation, minimum wage, interest rates, choices, aviation, amazon, single market, taxes, uk economy, monetary policy, cartel, survey, nationalisation, multiplier effect, quantitative easing, brazil, germany, rpi, pricing, dan ariely, opportunity cost, apple, pollution, oecd, rationality, keynes society, india, rsa, relative poverty, iphone, shipping, capital, merger, currency, imf, balance of payments, tragedy of the commons, price discrimination, current account, redundancies, economies of scale, london, savings, facebook, stakeholders, shareholder, behavioural economics, mpc, supply chain, liquidity, takeover, barriers to entry, reputation, income elasticity, poverty trap, microsoft, human capital, hamish mcrae, subsidies, discrimination, roger bootle, yuan, robert peston, duopoly, immigration, suppliers, us economy, gini coefficient, quiz, collapse, coffee, obama, pensions, development, national debt, consumer surplus, crowding out, etonomics, crude oil, scarcity, eurozone, labour market, ecb, petrol, taxation, tesco, free, brand, smoking, budget, paradox of thrift, cost of living, transport, labour mobility, global, speculation, starbucks, recovery, iceland, allocative efficiency, behaviour, federal reserve, david smith, surplus, shareholders, waste, ireland, happiness, growth, information failure, creative destruction, open source, vat, cost benefit analysis, trade deficit, tariffs, northern rock, edinburgh, ownership, scrappage, ocr economics, robert frank, aggregate demand, diane coyle, freight, kaletsky, royal economic society, eton college, exploitation, utility, fishing, labour force survey, government borrowing, edexcel economics, leverage, sony, marginal cost, information, tax, discounting, animal spirits, peter day, liquidity trap, contestable market, anchoring, zimbabwe, savings ratio, wiki, needs, european union, internet, public sector, evan davis, public goods, price war, heathrow, hotels, energy, standard of living, contestability, twitter, wants, hbos, stephanie flanders, poland, blog, migrants, consumer welfare, aqa economics, devaluation, spain, milk, pubs, foreign exchange, external shocks, comparative advantage, eu enlargement, movies, advertising, indirect tax, forecast, bond, mervyn king, income elasticity of demand, ebea, property rights, blogging, copper, accelerator, deforestation, hot money, jim o'neill, ucas, bonds, paul krugman, libor, elasticity of supply, carbon tax, income, diesel, greece, income tax, accelerator effect, guardian, fixed costs, nissan, deficit, john kay, sub-prime, global economy, economic efficiency, biofuel, vacancies, research, renewable, companies, profit margin, price capping, joint venture, price mechanism, world bank, martin wolf, training, startups, natural monopoly, house prices, competition commission, gilts, geoff riley, edmund conway, fairness, producer surplus, immobility, coal, social costs, will king, sentiment, redundancy, walmart, ageing population, disposable income, equity, corus, base rate, tickets, collusion, dynamic efficiency, obesity, social entrepreneur, oil prices, fair trade, real income, res, binge drinking, philip allan, russia, jobless, low pay, vehicles, broadband, cash, youth unemployment, price fixing, king of shaves, enlargement, google wave, hysteresis, tata, tariff, income distribution, compound interest, contestable markets, positional goods, eastern europe, economax, repossession, general motors, sustainability, ftse, age structure, frictional, satisficing, students, green shoots, logic of life, pay floor, disincentives, yahoo, blackberry, green revolution, negative externalities, oft, aldi, resources, gillette, liberalisation, collaboration, trend growth, migration, economics revision, healthcare, asda, financial times, fiscal drag, cadbury, credit, ryanair, wheat, market structure, winners curse, price volatility, apprenticeships, market power, hidden unemployment, demography, cyclical, british airways, deindustrialisation, declan curry, nokia, renewable energy, optimal currency area, sovereign debt, credit cards, bric economies, decoupling, markets, anti-trust, public good, law of unintended consequences, marginal tax rate, rory cellan-jones, diseconomies of scale, economic welfare, tax burden, undercover economist, child poverty, retailing, pension, the economist, barclays, schumpeter, exchange rates, landfill, enterprise, brics, redistribution, floating exchange rate, gold, veblen goods, unintended consequences, vertical integration, structural, car scrappage, kraft, reserve currency, football, job losses, costa, monetary policy committee, nhs, internet explorer, deleveraging, drugs, nelson thornes, scotland, hyperinflation, automatic stabilisers, real gdp, monopoly power, podcast, o2, pay cuts, labour supply, ocr as economics, global business, long tail,All tags
ECONOMICS TEACHER RESOURCE NEWSLETTER
Join over 4,000 other Economics Teachers in the UK and around the world who receive the tutor2u Economics Resource Email newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops.
Recent Threads on the Economics Teacher Discussion Forums:
Posts in: General Economics Teaching
Need help. - Economic Growth
Economies of scale presentation A2
Economic development
International Competitiveness
Keynesian Aggregate Supply
Demand Supply (% VAT Imposed) How to...?
Policy conflict and the Euro
Registering for the tutor2u VLU
Video Case-study - lunchtime prices slashed
Long Exam Example to Use for Revision Please?
