UK Inflation

Question 1

Demand pull inflation causes

Answer 1

• interest rate cut-QE low to like 0% in the past decade
• rising wages- increase disposable income
• increased confidence- US saving ratios reduced to 3.7% to post war periods 2023, increase in consumer credit.
• increased money supply- in the thirteen years following the 2008 financial crash, creating £875 billion of new money

Question 2

Cost push inflation causes

Answer 2

supply side shock
Rising wages
Higher taxes
Devaluation-Currency devaluation- Brexit devaluation of the £ led to higher import prices- Brexit Food costs 2021- 22—> + £210 per household. (Centre for Economic Performance (CEP) at LSE, Dec 2022) Increase inflation

Question 3

Causes of deflation in the UK- Reduction in AD

Answer 3

• Delayed spending-UK economy in 2009, bad deflation, caused
  by a collapse of aggregate demand, negative multiplier effects and possibly a credit crunch
• Positive real interest rates- real value of saving reduces so savings increase

Question 4

Causes of deflation in the UK-Increase in SRAS/LRAS

Answer 4

• falling prices for consumers-
• falling input costs- In 2014, the UK inflation rate was brought down by falling prices of imported food, energy and raw materials. However, this fall was short lived.