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Inflation in the UK is as high as 7% ! But why?

The inflation rate in the UK has hit a 30-year high, leaping to 7.0% in March from 6.2% in February. This is the highest level since records began in 1992 and are considerably higher than what economists were predicting. The main drivers behind this increase are broad-based price rises for items such as fuel, food, and furniture.

This news will come as a blow to many households who are already struggling with the cost of living. Inflation is currently outstripping wage growth, meaning that people’s pay packets are not going as far as they used to. This squeeze on household incomes is set to continue into 2021 unless wages start rising at a faster pace or prices start falling back down again.

The government will also be under pressure over this latest inflation figure.

Prime Minister Boris Johnson and finance minister Rishi Sunak have been criticized for doing too little to ease cost-of-living pressures in recent months. With Britain still grappling with the fallout from Brexit and now facing spiraling inflation, there are calls for both men to resign from their positions within the government.

But, What the hell is Inflation, and why it’s important?

Inflation is defined as an increase in the price level of goods and services over time. In other words, it’s a measure of how much more expensive things are now compared to how they were in the past. There are two main types of inflation: demand-pull inflation and cost-push inflation.

  • Demand-pull inflation happens when there’s too much money chasing too few goods. This can happen when the economy is growing too quickly, or when there’s an influx of people or money into an area (such as tourism).
  • Cost-push inflation happens when costs go up, such as raw materials or wages. This can happen due to natural disasters, wars, government policy changes (such as tax increases), or … War!.

Inflation is often seen as a bad thing because it erodes purchasing power – i.e., what you could buy with $100 last year may now only cost $90 due to inflation. This means that people have less disposable income and the standard of living declines. Additionally, businesses may suffer from inflated inventory costs and labor costs, which can lead to layoffs and higher prices for consumers.

How can we stop inflation?

There is no simple answer to this question, as there are a variety of factors that can contribute to inflation and therefore various ways in which it can be stopped. However, some economists believe that there are a few key things that need to be done in order to bring inflation under control.

One of the most important things is ensuring that the money supply grows at a slower rate than the economy. This can be achieved through tighter monetary policy, such as raising interest rates or decreasing the money supply through quantitative easing.

Another way to help slow the growth of the money supply is through financial regulation, which can limit lending and borrowing by banks and other financial institutions.

Source CNN Investopedia
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