Not even the most avid hawk is expecting inflation in the UK to get close to the peak of almost 27% reached in 1975, but there are certainly reasons why price pressures will increase in the short term.
A year of lockdown-enforced stop-go means that a considerable pent-up demand is being unleashed. The supply potential of economies has been cut by the pandemic. When demand exceeds supply, prices rise. The fact that inflation was depressed last year by the battering that economies were taking during the first wave of Covid-19 makes the problem look worse than it is.
Responding to the news of higher US inflation, Mark Haefele, chief investment officer at UBS global wealth management, said: “We think it highly likely that the uptick in inflation driving the recent volatility will ultimately prove short-lived. The latest rise in inflation, in our view, reflects year-over-year comparisons, which will fade.”
Even so, central banks have a mandate…