In the United Kingdom, CPI inflation in February came in at an annualized rate of 4.4%, more than double the Bank of England’s 2% target.
This is likely to result in an eventual hike in interest rates by the BoE, which will slow the economy, increase unemployment and prove once again that monetary manipulation by central banks simply doesn't work.
Pay attention if you live in America, the inflation will be here soon enough and in many of the same sectors. In the U.K., upward pressure came from energy and clothing prices. I have those on the list for the U.S., no later than mid-year. First, energy for obvious reasons, but then clothing and most other consumer goods.
"This is likely to result in an eventual hike in interest rates by the BoE, which will slow the economy, increase unemployment and prove once again that monetary manipulation by central banks simply doesn't work."
ReplyDeleteTo the unsophisticated reader (or newcomer to economics), the above comment by Wenzel might appear he endorses fake low interest rates courtesy of the central bank...when I'm quite sure he certainly does not endorse "monetary manipulation" of any sort.
Fortunately, in today's "Liberty" Street "Economics" blog, we learn there's no reason to worry about the recent rise in commodity prices--that is, unless you're poor or have reason to believe the model you just wasted an entire post on is garbage:
ReplyDelete"Overall, it appears that the discretionary income effects of commodity price changes generally have been a fairly small factor in aggregate consumption fluctuations. First, as discussed in a recent Economic Trends article by the Cleveland Fed, many households, especially low-income ones, spend a larger share of income and expenditures on food and energy than indicated in the macroeconomic data. Consequently, they are more susceptible to price increases in these goods. I plan to discuss this issue further in a future post.
Second, the discussion in this post assumes that the effects are linear. As Jim Hamilton has documented in many pieces (a recent example is his 2009 paper), oil prices appear to have a nonlinear effect on GDP—in particular, oil price increases that raise prices above recent peaks are associated with GDP declines, but oil price decreases and small increases appear to have little effect. If such effects are also true for consumption, then large commodity price increases potentially could have a larger effect on consumption than suggested here. Examining the possible nonlinear effects on consumption will have to be the subject of another future post."
At least the author will have some busy work now.
http://libertystreeteconomics.newyorkfed.org/2011/03/how-much-will-the-rise-in-commodity-prices-reduce-discretionary-income.html
General Mills agrees with you.
ReplyDeletevia MarketWatch:
"The Minneapolis-based company did warn input costs will go up in its fiscal 2012 year that starts in June, keeping a lid on gross profit margin growth. Commodity costs are expected to go up 4% to 5% this fiscal year."
Paging Paul Krugman...