Snapshot of Eurozone inflation falls to 5.5% in sharp contrast to UK. Economists put reason for divergence down to Brexit and Britain’s energy price guarantee.
Snapshot of Eurozone inflation falls to 5.5% in sharp contrast to UK. Economists put reason for divergence down to Brexit and Britain’s energy price guarantee.
It’s called core inflation. It doesn’t include volatiles.
The intended use of core inflation is when the base assumption holds true, that assumption being demand for food and energy will not reduce as price increases.
That assumption has not held, we’ve seen a reduction in demand for both as budgets have been squeezed to breaking point, even with the price caps.
That doesn’t change the definition of core inflation…
I never said it did, but it does change whether it’s an appropriate measure to use.
Why not suggest one that is then
Why would I provide evidence for your argument? Burden of proof is on you chap as you are the one challenging the OP.
Core inflation is the measure used by every central bank mate.
It certainly is a measure, but The measure? Don’t be reductive, no central bank uses only one measure to make decisions.
Core inflation is important in normal times when the typical fluctuations in energy and food prices are not driving changes in aggregate demand.
But these are not normal times, the fluctuations and impacts have and continue to be greater than usual, and so aggregate demand is changing as people have significantly less money due to spending on essentials, ie food and energy. Source, pretty much every interview and statement made by the Bank of England since this began.
This is a supply-side crisis where energy costs are double counted as lots of food consumed in the EU+UK is grow in energy intensive ways (industrial greenhouses, or transported by airfreight, or both). The BoE only have one tool, interest rates, which impact demand much more than supply in the short and medium terms, and constrict UK-based increases in supply in the long term as borrowing to fund new infrastructure is cost prohibitive.
The BoE are trying to restrict the money supply as, traditionally, higher interest rates are meant to incentivise saving, and reduce access to credit but Bailey knows that that cut cannot (without significant pain) come from cutting essentials. Essentials spending acts as a sort of bedrock to how much money you need in the money supply.
This is also why Bailey is always saying people shouldn’t be asking for pay rises, because he’s acutely aware that if people get pay rises then it will further fuel inflation as the higher prices become more affordable, and demand could rise further.
The last thing you want with a reduction in supply is a rise in demand - hence why we’re increasing stock piles of gas for winter, etc.
The ability for monetary policy to effect supply-side problems is super limited - it’s typically best for demand-side issues such as overheating - but we also have a government who refuses to consider any fiscal policy beyond giving money to their mates.
The 2% target inflation is core or not?