Tuesday, May 13, 2008

Stagflation In U.K., U.S.

During the lastest month, consumer price inflation and producer price inflation both rose significantly in the U.K. During previous months, the U.K. actually had surprisingly low inflation compared to the rest of Europe. Until March, the U.K. at 2.5% actually had the lowest inflation rate of all EU countries except Holland(1.9%). But now the effects of the weaker pound are starting to get felt. And as the effects of currency depreciation generally lag quite significantly, it will likely cause inflation to rise even further from the April number of 3.0%, which is going to force Bank of England chief Mervyn King to write a letter to the Chancellor of the Exchequer Alistair Darling to explain the failure to meet the goal and specify what will be done to push it back below 3%. Most likely that letter will likely be a bunch of nonsense ignoring how it is Bank of England policy that is responsible for it, while predicting that inflation will soon fall again without any real basis for that assertion.

Note that this increase in inflation ocurred even as the U.K. economic growth is rapidly deteriorating, indicating that the U.K. economy is increasingly characterized by stagflation.

Another economy charactericed by stagflation is clearly the U.S., something which was confirmed by today's reports. The import price index rose another 1.8%, and is up by a full 15.4% the latest year. Even the index for non-fuel imports rose 1.0% compared to the previous month and with 5.8% compared to 12 months earlier. Tomorrow's CPI report should show a lot slower increases as the BLS assume large seasonal increases this time of the year. Still, the increase should be comfortably above zero.

Meanwhile even nominal retail sales fell last month and rose just 2.0% compared to 12 months earlier. This implies that real retail sales are falling significantly.


Post a Comment

<< Home