Tuesday, February 18, 2014

British Inflation Still Remarkably High

For the first time since 2009, when oil prices had collapsed and the VAT had been temporarily reduced, British inflation fell below 2%, to 1.9% to be more precise. Note however that this is still more than a percentage point higher than in the euro area, despite the fact that the pound is up about 6% against the euro (and up about 6% against the U.S. dollar) during the latest year. When price inflation continues to exceed that in your major trading partners despite a rising currency, this suggests that domestic price pressures are very strong. In Britain's case it doesn't reflect rising wages however, but falling productivity.


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