inflation

Fall in global inflation rates

Fall in global inflation rates

Since the 1970s, we have seen a fall in average global inflation rates. There have been periods of inflation (often due to rise in oil prices), but the overall trend has seen much lower inflation rates. In the 1970s, inflation was seen as one of the main macro-economic challenges, but now many feel the challenge is that inflation has become too low risking deflation. Global inflation shows a marked fall since 1977. The spike in inflation…

UK Inflation Rate and Graphs

UK Inflation Rate and Graphs

Current UK Inflation Rate CPI inflation rate:  0.3% (headline rate) CPI – D7G7 at ONS (page updated 10 July, 2016) Source: Raw data General inflation tables | CPI annual % change D7G7 at ONS Other measures of inflation RPI = 1.4%% May 2016 (RPI index CZBH) RPIJ = 0.7% CPIH = 0.7% (CPIH – L550) Updated 10th June, 2016 See: Measures of inflation What is causing low inflation? Lower cost push inflation – falling oil prices. …

How can we have economic growth without inflation?

How can we have economic growth without inflation?

Readers Question: How can a developing country grow without inflation? Economic growth can lead to inflation, for example, if demand rises faster than productive capacity, then we will see rising prices. However, economic growth is compatible with low inflation, and developing economies which can increase productive capacity and general efficiency can see rising living standards without excessive inflation. Economic growth without inflation A simple model to show economic growth without inflation is to show LRAS (long run aggregate supply) increasing at the same rate as aggregate demand (AD)

Why is cost of living in UK so expensive?

Why is cost of living in UK so expensive?

Readers Question: Why is cost of living in UK so expensive? The cost of living depends on: The price of basic necessities – food, fuel, heating, transport, housing / rent, entertainment. The effective cost of living also depends on real wages. It is expensive to live in Nordic countries, but real wages tend to be higher. For items, such as eating out – the US is often cheaper than many European countries, but Americans need to spend much more on private health care insurance. Summary – Why is the UK so expensive. The biggest…

Is zero inflation a good thing?

Is zero inflation a good thing?

In the UK, CPI inflation has fallen to 0%. Is this a cause for celebration or a cause for concern? Firstly the government set an inflation target of CPI 2% +/-1 for good reasons. The fear is that if inflation is too low, we may start to get problems associated with deflation. More details here About the problems of deflation. But a quick summary: Rising real value of debt. With low inflation, it becomes harder than expected for people to pay back…

Long-Term inflation forecasts

Long-Term inflation forecasts

Reader’s Question: What will be the inflation rate in 2020? Firstly, I can’t resist a few economics ‘jokes’ “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today. “ “The First Law of Economists: For every economist, there exists an equal and opposite economist.” The Second Law of Economists: They’re both wrong. Q:Why did God create economists ? A: In order to make weather forecasters look good. Funny Economics To be honest, it is very difficult to make inflation forecasts for more than 12-18 months time. I feel…

Prices rising, but inflation rate down?

Prices rising, but inflation rate down?

Readers Question: Would it be possible for a nation to claim that is reducing inflation rate successfully through economic measures,  however at same time is allowing increase of commodities prices such as bread, meat, and etc… Firstly a fall in the inflation rate, means prices are still rising. Just at a slower rate. For example in late 2008, the UK inflation rate was falling from 5% to 2%. Prices were still rising at the start of 2009. Two useful definitions Headline inflation rate – measures the…

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Inflation target during deflation

Readers Question: How does inflation targeting operate when there is a deflation? and what are the problems associated with this? It’s a good question to ask at the moment, especially with regard to the ECB and Eurozone. Firstly, the EU inflation target is – below but close to 2%. If inflation falls below 2%, the Central Bank should pursue a loosening of monetary policy – lower interest rates (if possible), quantitative easing and allowing the exchange rate to fall. The ECB state By referring to “an increase in…