For a few weeks now the government in the UK have been pushing the rhetoric that the recent rise in inflation indicators is merely a "blip" and things will return to normal soon. This is a position that seems to have been adopted by many leaders around the world.
What is Inflation?
"Inflation is a measure of how much the prices of goods (such as food or televisions) and services (such as haircuts or train tickets) have gone up over time.
So if inflation is 3%, it means prices are 3% higher (on average) than they were a year ago. For example, if a loaf of bread cost £1 a year ago and now it’s £1.03 then its price has risen by 3%.
To keep inflation low and stable, the Government sets us an inflation target of 2%. This helps everyone plan for the future.
If inflation is too high or it moves around a lot, it’s hard for businesses to set the right prices and for people to plan their spending."
(The Bank of England, https://www.bankofengland.co.uk/monetary-policy/inflation)
As vaccine rollouts gather momentum worldwide, so do some of the key indicators, namely house prices and car sales in the UK. In further proof of continued global recovery, Brazil's GDP is back to pre-covid levels, and the OECD (Organisation for Economic Co-operation and Development) has upgraded the UK's year-end GDP forecast by over 2% to 7.2% - which would have the UK outpacing the US to year end.
Oil prices are rising too, and the UN's food price index is at a 10 year high. Manufacturing is up, and many countries are seeing a much higher than expected level of inflation.
If this continues, there is no way the current rhetoric can prevail. Eventually the "mere blip" will have to be taken seriously, even if the decision is to absorb the negatives of higher inflation to ensure the positive effects on multiple industries and, possibly most importantly, the higher employment levels triggered by this success.
written by Duncan Balcon for the KC Partner's Legal Brief - Full publication available at https://www.linkedin.com/company/kcpartners-ltd/posts/?feedView=all