Inflation – Mirage Or Major Threat?

By Dr Andrew Sentance, Senior Economic Adviser – Cambridge Econometrics & Former MPC Member
 
The whiff of inflation is in the air. In the US, the headline measure of inflation has risen to 5.4 percent. The prices of goods leaving US factories are up 7.3 percent on a year ago. In the Eurozone, CPI inflation has risen from negative territory last autumn to around 2 percent now. Factory gate prices in the euro area are nearly 10 percent up over the past 12 months.
Here in the UK, CPI inflation has risen to 2.5 percent – moving significantly above the Bank of England target. But there are many indications it will rise further. As in the US and the Eurozone, manufactured goods prices are rising more rapidly – up 4.3 percent on a year ago. In addition, the cost of goods purchased by UK manufacturers is up 9.1 percent on a year ago. This is an indication that more inflationary pressure is in the pipeline.
In the UK currently, inflation measures range from 2.4 percent (CPIH – CPI inc...