The changing market has brought some astounding observations in recent months. Some of the fiercest bitcoin skeptics started to change their minds after cryptocurrencies seem to have become (at some point) one of the solutions to avoid inflation. Others, still dubious of crypto, are looking at gold, and it looks like the metal’s virtues could be soon rediscovered.
There are of course concerns regarding what will happen to the United Kingdom’s economy in the upcoming months, as we’re expecting the inflation to hit once the Covid-19 and vaccine rollout will have been solved. Jerome Powell, the Federal Reserve chairman, claimed that the economy is currently at an inflection point.
And while we’re still dealing with vaccinations, the upcoming inflation is really held at bay. But it does not mean, that it will not hit eventually. There are a few exceptions, of course, but the United Kingdom is not one of them.
From the moment vaccine arrived, the UK had some growing concerns about its future inflation rates, and whether the Bank of England will be fully capable of handling it. But there are positive surprises – March has turned out to be a good month, as the inflation rate became relatively low. But, as always, this could be easily explained by the things happening in the country, especially the events around Covid-19.
So how did the pandemic hit United Kingdom’s inflation?
ONS (Office for National Statistics) has published data that say the inflation rate at the beginning of April was 0.4%. This is the result of easing the CPI rates (Consumer Price Index). Before that, the inflation rate in the United Kingdom was 0.6% and reached as much as 0.7% in December and January respectively.
The Guardian claims that the 0.1% increase was caused by the food retailers and stores offering household goods. They have withdrawn from discounts, and have pushed up the prices a bit. Therefore, fewer people were eager to spend money there. But then we witnessed a rather sharp decrease in inflation, as we entered February. This is due to clothing retailers, and dealers of second-hand cars, who have offered big discounts to their clients.
According to ONS, this is a steady pattern that occurs every year, so we shouldn’t be worried about it, but also we shouldn’t treat it as any form of success over inflation. It’s just normal, that the rates swing a bit, given the consumers’ behaviors.
Inflation could rise also after the government offers yet another financial support for the economy. This seems to be a trend though, as the UK government (as well as most other governments) is spending heavily and pumping big amounts of money into Covid-19 relief plans.
To add to that, there are some other effects of the pandemic – such as the drop of commodity prices, and the rise of the unemployment rate. Paradoxically, this could be yet another reason for the lower inflation, but as both have been improving, we could see that in the months to come, inflation will (most probably) rise.
What is important, the Bank of England has agreed to set the target rate of inflation at 2%. It’s a positive that the current rate is well below that mark, as we’re observing that in other countries inflation has been raging (over 4% in the United States for example, and as much as 12% in Turkey). It is good news for the United Kingdom, and the experts are still yet to determine, whether the prices will snap back when the lockdown will have been fully lifted, and the country will come back to a relative ‘normality’.
What are the pandemic effects on the global economy?
Developed countries are more or less dealing with the same situation as the United Kingdom. We mentioned the USA and its rapidly growing inflation rate, but it is worth mentioning, that Joe Biden has recently introduced major plans of supporting their economy financially.
To read a comprehensive analysis of the inflation rates in the UK and other economies, feel free to access the great piece by Betty Jordan written for Disruption Banking: https://disruptionbanking.com/2021/04/12/how-did-the-pandemic-affect-inflation-rates-in-the-uk//.