Interpreting the runes of British inflation


It’s easy to get the “sticker shock” from the latest UK price data, Released earlier this weekData from the National Bureau of Statistics show that the inflation rate reached 4.2% in October, the highest level since 2011 and more than double the Bank of England’s 2% target. For many, this alone is enough to conclude that it is wrong for the central bank to not raise interest rates as many investors expected. November meeting.

However, in the words of economist Milton Friedman, monetary policy has “Long-term and variable lag“: It may take some time for changes in interest rates to affect economic growth and price growth, usually over a year. The challenge for central bankers is how to use the data they receive about current economic conditions to judge the future needs of the economy.

On this issue, the details of the latest inflation data are not clear. Most of the sharp increase is due to factors that are unlikely to be repeated, and it is almost certain that it will disappear by this time next year.The biggest contribution comes from the surge Natural gas price And other energy costs. The Office of National Statistics in the United Kingdom estimates that the consumer price index increased by about 1.3 percentage points year-on-year due to rising fuel costs. Used car prices With the resumption of air travel, airfare prices have risen, making transportation the second largest contributor. Higher hotel prices ranked third, partly because of the cancellation of temporary VAT exemptions for the industry.

Not like In the U.S, There is very little evidence that the economy faces the risk of overheating due to excessive monetary and fiscal stimulus. Only a few categories of goods suggest an oversupply situation in the economy: furniture prices have soared, which may be due to more affluent households using part of their epidemic savings for redecorating, as does the cost of household appliances. In other places, however, price growth has been more moderate.

On the other hand, there is no reason to believe that the economy is still The need for stimulation Launched at the worst of the epidemic. Labor market data, Released earlier this month, Indicating that the end of the “vacation” job retention program did not slow down the recovery of employment. Officials from the Bank of England have stated that the uncertainty over the impact of the end of the plan was the main reason for the central bank’s interest rate setting committee to postpone rate hikes in November.

At present, there is hardly any worrying sign of a “wage price spiral” in the data-in this case, rising labor costs have exacerbated inflationary pressures as employees try to maintain purchasing power despite rising prices. Distortions related to the pandemic have made overall wage data less reliable, but wage growth is now likely to have fallen below inflation.In fact, data from the research team XpertHR shows that the median settlement is stuck Approximately 2% of pre-pandemic standards.

Despite this, more and more workers are quitting to find new jobs, and job vacancies in advertisements are at a record high. These are all signs that the labor market may soon become “tensed” enough to trigger sustained wage increases. In this case, there is little reason to believe that the UK still needs as much central bank support as before.

Before the November meeting of the Bank of England’s Monetary Policy Committee, this paper believes that the reasons for raising interest rates are very balanced. Although the surge in inflation is not as worrying as it seems at first, the labor market data did put more pressure on the Bank of England to take action in December.



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