Three questions on quantitative easing, inflation and why inflation in the UK is high despite falling real incomes and lower consumer spending. Readers Question: Isn’t the government (of UK) already printing lots of money? The Bank of England have electronically created money and used this to buy government bonds from financial institutions. The Bank created …
Readers Question: I understand that inflation can cut the value of debt for countries and companies, because higher prices mean more revenue for the same output therefore additional money to pay of debt. However, does this apply to personal debt? i.e. unless my wages are rising with inflation I have no extra revenue and therefore …
Readers Question From why inflation makes it easier to pay government debt 1. Why will wages increase with inflation? There is no law that inflation will automatically lead to higher nominal wages. It is possible for inflation to be higher than the nominal wage growth. In this case, workers see a fall in real wages …
Readers Question: I thought of an analogy and wondered if I am correct. Suppose there is a concert venue that seats 10,000 people. On one day, the Rolling Stones are scheduled to perform there. Tickets are nominally $50, but since the venue is likely to sell out, scalpers buy them up. Let’s assume that Rolling …
Readers Question: In 2009, both inflation and growth went down, but in 1991, the inflation went up, even though the growth went down. What could be the reason for the difference in behavior? (UK Growth Rates) In 1990 inflation was high. This high inflation was a result of the previous economic boom. In the late …
Source: ONS This graph shows how inflation rates for different categories can vary enormously. Firstly, gas and electricity prices are by far the most volatile. This reflects the volatile nature of supply, it also reflects the fact demand and supply are inelastic. See: volatile food prices for the economic theory behind this volatility. Despite the …
The latest inflation figures show a rise in inflationary pressure. CPI has increased from 3.3% to 3.7%. This places inflation considerably above target. Some commentators are now worried there is a danger the MPC could lose credibility in combating inflation. Just to further illustrate the dilemma for the MPC, the rise in inflation is being …
Readers Question: Why do the Fed choose to prefer the PCE that leads to a lower inflation rate than the CPI? This refers to US inflation rates, UK readers may get more from RPI vs CPI Difference Between PCE Deflation and CPI The CPI measures the out-of-pocket expenditures of urban households. It is based primarily …