Sticky inflation is an undesirable economic situation where falling economic growth fails to reduce inflation.
Sticky inflation is also sometimes known as Stagflation – Rising prices, but stagnating economy. The UK experienced stagflation back in the 1970s as a result of cost push inflation(higher oil prices and rising wages)
Forecasts for UK economic growth have been slashed from 3.1% to 1.5% – This could cause problems for the chancellor as it will lead to a shortfall in tax revenue.
Yet, despite slowing economic growth, some economists predict that inflation could possibly increase.
Upward pressure on inflation could come from higher fuel prices, higher food prices and some supply constraints in key sectors. If inflation does remain above the government’s target of 2% it will limit the capacity for the MPC to cut interest rates.
However, if the Housing market continues to fall and unemployment were to rise in 2008, it would be likely to reduce long run inflationary pressures.
It is worth bearing in mind that in the past 15 years, the UK economy has experienced a remarkable improvement in that higher growth has not caused significant inflationary pressures. – Unlike the boom and bust periods of the 1980s.
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[...] Sticky Inflation forecast for UK [...]
[...] The Phillips curve suggests there is a trade off between inflation and unemployment, but this trade off can change. E.g rising oil prices could cause cost push inflation, which shift AS to the left causing both inflation and unemployment. This is known as stagflation. [...]
[...] Sticky Inflation – higher inflation lower growth [...]
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