In the Financial Times’ article “Why the UK inflflation risk after lockdown is hard to assess” (15 March 2021) we can read: The question [...] is whether broader inflflation pressures will build as the UK economy reopens – with many consumers ready to spend amassed savings and many businesses still unable to operate at full capacity. So far, price rises have been patchy. [...]. Research [...] shows that prices have been more volatile in the past year than at any point in the last 20. But the measure of consumer price inflflation targeted by the Bank of England stood at just 0.7 per cent in January, even after adjustments by the ONS to take account of the way lockdowns have skewed spending. The BoE is unlikely to worry about temporary mismatches of demand and supply as the economy reopens. [...] the risk is of a more persistent hit to supply, if structural changes such as the shift to remote working and online retail leave people with the wrong skills for the jobs available, or if companies’ capital is tied up in the wrong locations. [...] What is clear is that the headline rate of inflflation is increasingly unlikely to reflflect individuals’ experience. This is not only because essentials such as food and energy make up a bigger share of spending for poorer households, while those on higher incomes spend more on services. Represent the UK labour market in a Wage-Setting/Price-Setting graph. (b) Explain what are the future challenges for the BoE (Bank of England) in making monetary policy decisions and explain how the potential structural changes mentioned in the article may affect different groups of the UK income distribution. (300 words max)
In the Financial Times’ article “Why the UK inflflation risk after lockdown is hard to assess”
(15 March 2021) we can read:
The question [...] is whether broader inflflation pressures will build as the UK
economy reopens – with many consumers ready to spend amassed savings and
many businesses still unable to operate at full capacity.
So far,
been more volatile in the past year than at any point in the last 20. But the
measure of consumer price inflflation targeted by the Bank of England stood at just
0.7 per cent in January, even after adjustments by the ONS to take account of the
way lockdowns have skewed spending.
The BoE is unlikely to worry about temporary mismatches of demand and supply
as the economy reopens. [...] the risk is of a more persistent hit to supply, if
structural changes such as the shift to remote working and online retail leave
people with the wrong skills for the jobs available, or if companies’ capital is tied
up in the wrong locations.
[...] What is clear is that the headline rate of inflflation is increasingly unlikely to
reflflect individuals’ experience. This is not only because essentials such as food and
energy make up a bigger share of spending for poorer households, while those on
higher incomes spend more on services.
Represent the UK labour market in a Wage-Setting/Price-Setting graph.
(b) Explain what are the future challenges for the BoE (Bank of England) in making
the article may affect different groups of the UK income distribution.
(300 words max)
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