Inflation Stays High - Part 1 (3) Introduction

Introduction

The latest data for the US, UK and EU, shows that, inflation stays high. The hype is that inflation is falling – which, of course, does not mean that prices are falling – but, inflation, like all economic phenomena, never moves relentlessly in one direction only, and that is particularly true with inflation data that is actually only a presentation of the movement of selected prices of different baskets of goods and services. As I pointed out, during lockdowns, published inflation data suggested that inflation was low, because it continued to deal with a basket of goods and services that consumers could not buy, and whose price were low due to a collapse in demand, and left out a whole host of other goods and services they were, then, buying, and whose prices had risen sharply. Official data always understates the effect of rising prices on the goods and services that workers buy.

But, inflation always arrives in waves and surges, meaning it also goes through periods of ebb, as well as flow. The fact that inflation might fall from a peak does not mean, it may not rise again to a higher peak, in the next wave, or may simply remain at high levels, taking years to subside. Given that nearly all central banks aim for a 2% rate of inflation, and yet, in those economies, inflation remains at three to five times that level, its clear that it remains at a high level,  and in contrast to the claims, more than a year ago, that it was merely “transitory”, is not going away any time soon. Its in the interests of governments to pretend it is, as they try to force workers to accept multi-year pay deals, on that basis, pretending that, as for example with the 9% offer, over two years, to rail workers that, as inflation falls, accepting a below current inflation rise now, will be compensated the following year. Workers would be mad to accept that, because it simply means accepting below inflation rises, not just this year, but for those future years too, as inflation stays high.

last week, headline US CPI came in at 6.5%, year over year, compared to 7.1%, the previous month. The core inflation figure came in at 5.7%, compared to 6.0% the previous month. The last UK headline CPI came in at 10.7%, as against 11.1%, with the core figure being 6.3% as against 6.5%. UK RPI came in at 14%, as against 14.2% the previous month. Food inflation came in at 16.4% up from 16.2% the previous month (the latest data is released on Wednesday). For the EU, the figures were, for the headline rate, 11.1% as against 11.5%, and 5.97% as against 5.96%. But, its also important to examine what is happening on a month to month basis, as well as inside these aggregates.

I will examine that for the US, UK and EU, starting with the US, on Wednesday.