UK has inflation are we next?

Conventional economic wisdom suggests that when economies slow down, inflationary pressures diminish. But as some of us have been arguing for a long time, the unique circumstances of this credit crunch – the related debt retrenchment and collapse of bank lending, in the context of on-going fast growth beyond the Western world – means conventional economic wisdom should be thrown out of the window.... [more]

Conventional economic wisdom suggests that when economies slow down, inflationary pressures diminish. But as some of us have been arguing for a long time, the unique circumstances of this credit crunch – the related debt retrenchment and collapse of bank lending, in the context of on-going fast growth beyond the Western world – means conventional economic wisdom should be thrown out of the window. UK inflation has stayed high in part because of the 20pc fall in the trade-weighted value of sterling between 2007 and the end of 2009 – which, in turn, has pushed up import prices. The deflationists failed to grasp that around 35 pence of every pound spent in the UK goes on imported goods – making our CPI number uniquely sensitive to currency weakness. Firm commodity prices have also played their part in persistent UK inflation. Many analysts forecast that "global recession" would lead to "demand destruction" and a related collapse in the price of oil and other necessities. Again, a view based on conventional, outmoded thinking. http://www.telegraph.co.uk/finance/comment/liamhalligan/7958148/Inflation-comes-through-the-door-and-wisdom-flies-out-of-the-window.html [less]