Although inflation has recently increased to 1.6%, understandably through the devaluation of the pound sterling since the result of the EU referendum (more than 11% on the Euro, more than 16% against the Dollar) and the rising price of oil, it is still an increase which falls within the Bank of England’s 2% target, a target I might add which aims to achieve price stability and is set by Government. So, what’s wrong with a little inflation?
Although this should not be alarming to the consumer, it most probably should be. It was not long ago the now ex-Chancellor of the Exchequer, George Osborne, indicated that 0% inflation in 2015 was a ‘saving to consumers’, contrary to the inflation figure set for the Bank of England to achieve (and to report on if not reached). Now, although to an extent this is true, a continued fall can also curb consumer spending as one may hold out for a better price hence the need to keep inflation up year on year to limit this uncertainty. The mood would be terribly important too, so if the population is generally happy then consumer spending will continue without further ado and might even see an increase in purchasing
Apart from a period in 2009 during the Great Recession, the RPI (Retail Price Index) is almost always higher for those that have mortgage repayments, therefore homeowners could feel an added pinch in the propensity to spend. Importantly to note, as of November 2016, personal credit is at an all-time high and thanks to the positive mood spun by the press just a couple of years ago when CPI was at all-time low we could see spending now being curbed on the back of rising everyday costs combined with increasing and potentially unmanageable credit debt. For some it could be untenable to control given unemployment is expected to rise throughout 2017 which in turn will affect the the UK economic outlook leading to a a negative downward spiral effect.
So, I ask again, what’s wrong with a little inflation? Well, if the starting point for consumer saving and spending was at 0% then surely anything above and beyond is going to negatively affect spending, especially for so-called JAM’s, the Government’s branding of those that are ‘just about managing’. On the flip side, however, had Mr. Osborne indicated that inflation at 0% was negative for consumers then the spiral of deflation could well have continued as mood, or “animal spirits”, again, has played an umeasurable role, professed of course by an economist not widely supported by neo-liberals, John Maynard Keynes.
The above is not exhaustive, nevertheless it’s important to be critical about what happens next as all facets of the economy need to know the extent of the deepest reaches of a Europhile’s thinking as well as taking on board the ultra-positive outlook from hard Brexiteers. Hard is now clean, soft is now dirty but still the UK Government has a hard task ahead of satisfying 48.1% of the UK population who up until last June probably ‘never had it so good’…where matters are more certain remaining ‘in’ as opposed to being ‘out’.