It looks like inflation and it feels like inflation but is it inflation?
The recent release of inflation figures by the ONS, showing a rise to 2.9% for the year to April, will not be welcome news for our nervous new government. But driven as it, not by an overheating economy, but by the fall in the value of sterling and the rising price of oil, will policy makers have the sense to keep their nerve?
For Theresa May's "Just about managings" this feels a lot like real inflation. The rising price of electricity, of food, and at this time of year critically, the cost of package holidays, will all hit struggling households. With the prospect of a second election this year all too real, MPs will be aware that critical public sector voters will be feeling the pinch from both sides with rising prices and the public sector pay freeze. Indeed, with average wage growth at 2.1%, the gap between underlying pay growth and inflation continues to widen.
There will be pressure on the Bank of England to react. With inflation well above its target rate of 2%, many will think the Bank should consider revising the current base rate of 0.25% upwards. That would be the conventional response were this conventional inflation, but this inflation is caused by the markets' response to Brexit and the recent election result, not an overheating underlying economy or a consumer spending binge. Reacting by throttling back on the money supply would only weaken the economy further.
So, although this may look and feel an awful lot like inflation, we need not to panic. Sometimes, even when it looks like a dog and it barks like a dog, it isn't a dog.
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