Current UK Inflation Rate
- CPI inflation rate: 1.5% (headline rate) CPI – D7G7 at ONS
- (page updated 18 Dec 2019)
Other measures of inflation
- (CPIH) CPI including owner occupiers’ housing costs – 1.5% (CPIH – L550)
- RPI – 2.2% (Dec 2019)
- See: Measures of inflation
Cost-push inflationary factors
In 2017, the UK saw a rise in cost-push inflationary pressures. This caused a spike in inflation, despite relatively weak economic growth. Cost-push inflationary factors have come from:
- Devaluation in Sterling. This makes imports more expensive and has fed through into higher input prices for manufacturers.
- Rise in petrol prices in the early part of 2017.
- Rise in food and recreational goods.
In 2018/19, these cost-push factors have fallen away and weak economic growth has kept inflation below target.
Reasons for low inflation in the UK
- Low worldwide inflationary expectations. Europe is experiencing very low rates of inflation.
- Fall in global inflation rates since 2007.
- Supermarket price wars, with big chains, such as Tesco and Sainsbury attempting to maintain market share from Pound Shops and discounters like Lidl.
- Weaker commodity price growth.
- Fiscal austerity – many government departments still seeing spending squeezed. In particular public sector pay restraint of recent years has reduced real wages for public sector workers.
- Private sector wage growth is still weak. This has limited costs of firms and limited growth in aggregate demand.
- A potential negative output gap, with real GDP still around 10-15% below pre-crisis trend rate.
Inflation trends in the UK
Despite temporary cost-push inflationary factors in 2017, underlying inflationary pressures remain muted – at least compared to the past four decades.
The current UK inflation rate compares favourably to much of the post-war period.
The 1970s frequently saw double-digit inflation. This was due
- Cost-push factors – rapid rise in oil prices
- Rising wages due to powerful trade unions trying to keep up with living costs.
- Lack of independent monetary policy
- Inflation expectations rose
Late 1980s inflation
The inflation of the late 1980s was due to
- Rapid economic growth ‘The Lawson Boom‘ – growth was above the trend rate causing supply shortages
- Rise in house prices fuelling wealth effect
- Lack of independent monetary policy. Policy was partly set by ‘shadowing the D-Mark’ which led to loose monetary policy in late 1980s
Inflation and wages
- Real wages = nominal wages – inflation.
- Usually, during a period of economic growth – wage growth is higher than inflation, this leads to positive real wage growth.
- During the economic recession of 2009-13 – we had a prolonged period of negative real wage growth. Wages rising at a slower rate than inflation.
- The end of 2014 saw the first signs of renewed wage growth and positive real wage growth.
In 2017/18, the trend of negative real wage growth resumed.
However, since 2018, wages have started to creep up whilst inflation has fallen.
See more at UK wage growth
Inflation since 1990
- Inflation rose over 8% in the late 1980s due to the Lawson boom, which was a period of unsustainable economic growth.
- Inflation was low in the period 1992 to 2007. This was a period known as the ‘great moderation’
- The inflation of 2008 and 2012 was due to cost-push factors (devaluation and rising commodity prices)