economonkey

Should we be surprised that the Bank of England took desperate action today, cutting interest rates by an astounding 1.5 percent down to 3 percent, the lowest level in over half a century? OK, so it’s a massive cut and far more than the 1% which even the most dovish of market watchers were calling […]

Once a month without fail the British press gets its knickers all in a twist over what the Bank of England’s decision on interest rates will be and what it will mean for us all. But is this monthly tweaking of rates by quarter of a percent in either direction really that important any more? […]

On the first Thursday of every month the Bank of England’s Monetary Policy Commission (MPC) has a little get together to decide what to do about interest rates for that month, and a couple of weeks later the notes from that meeting are released to the press. Until recently these notes didn’t generate a lot of […]

When people talk about ‘inflation’, they implicitly mean one of two types: price inflation or wage inflation. In simple terms, price inflation is an increase in the cost of the things people buy, such as food, furniture, fuel and so on. Wage inflation is what happens when salaries go up across the board, regardless of the type of market sector or level of job.

One type of inflation can lead into the other, with higher prices leading to demands for higher wages to compensate, then strikes, capitulation, an increase in prices to cover higher payroll costs, and around again, in what’s termed a wage-price spiral, a type of positive feedback loop.

There are various indices that measure price inflation. The UK government used to target RPI (the Retail Prices Index), aiming to keep it below 2.5%: at the time of writing it’s a whisker over 4%. But in more recent times the target has been CPI (the Consumer Prices Index), also known as the Cheap Plastic Index or Chinese Products Index by cynics, because it excludes housing costs and places quite a high emphasis on consumer electronics. Some people complain that ‘real’ price inflation is anywhere between 5% and 10%, depending on who you are and what you buy: you can check your own at www.statistics.gov.uk/pic/