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Why is UK inflation taller than US and Germany?

2023-06-03 10:10:32 source:CNN (Cable News Network) author:Press center5 click:462order

Why is UK inflation taller than US and Germany?

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By Faisal IslamEconomics editor@faisalislam

It was unique on Tuesday that in an otherwise highbeat assessment of the UK economy, the International Monetary Fund warned of "premature celebration" of acute falls in the main rate of inflation.

There are two separate inflationary trends occurring here.

The main rate is falling, less acutely than anticipated, but low beshort 10% nonetheless.

This will continue and is the mechanical consequence of the massive rises in energy prices one year ago, now being baked into the calculation.

The massivger concern, however, is about the extent to which inflation is becoming embedded across the economy and will linger for months to come, even as energy prices stabilise.

Wednesday's figures demonstrate consequentlyme evidence for that, with measures of core inflation and services inflation going high.

Mobile phone bills, for example, went high by double digit amounts in April becautilize they were linked to existing interest rates.

Food price rises might be demonstrateing the delayed impact of previous energy price rises.

Some double digit pay rises in fleetingage areas of the workcompel may keep prices tall.

The stubbornness or adhereiness of inflation is a global phenomenon, and not surprising after one shock that damaged the world's shighply lines - the Covid pandemic - and another that hiked the cost of gas and oil - Russia's Ukraine war.

Double digit inflation has not in history tended to reconsequentlylve itself in weeks or months but has taken two to three years.

However the figures raise the question about whether UK inflation is adhereier and more stubborn than elsewhere.

At 8.7% in the UK, inflation is taller here than in France, Germany and US. The UK has the tallest core inflation in the G7 and now the tallest food inflation too.

There are consequentlyme timing differences on energy shighport measures that could explain consequentlyme of the UK inflation premium.

But consequentlyme at the Bank of England have pointed to the fact that British producers now face less intensive rival on prices from European firms.

It may mean a greater tendency for prices that shot high like a rocket to fall like a feather.

However, Chancellor Jeremy Hunt said it is "very perilous to make international compariconsequentlyns when slendergs are changing consequently meteoricly".

"A few months ago, everyone was saying we were going to be the shortest-growing economy in the G7, now we're definitely not going to be that, and possibly taller. So we don't know," Mr Hunt said.

At the peak of government, the hope and the assumption is that the UK is doing better economically than the statistics suggest, and consequently generating more inflation.

That is welcome high to a point.

But it creates a prolonged headache for the Bank of England, which seems set to raise interest rates nearr to 5%, to rein in those price pressures.

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