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Category: Glint's Helpful Hints

Glint’s Helpful Hints: Inflation, globally

Inflation has become a global problem. What with Covid-19 lockdowns creating clogs in many different supply chains, adverse weather conditions incitin...

15 September 2022

Gary Mead

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Inflation has become a global problem. What with Covid-19 lockdowns creating clogs in many different supply chains, adverse weather conditions inciting food shortages, higher fertilizer prices cutting agricultural production, and now the Russo-Ukraine war lighting a fire under energy costs, inflation is everywhere.

This week the latest consumer price index (CPI) data for the US showed that prices rose by 8.3% in August, against consensus opinion that it would fall to 8.1%. The CPI in July was 8.5%.

In the UK August’s CPI, also published this week, was 9.9%, against July’s 10.1%. In the Eurozone the August average inflation level for the 19 countries using the Euro are published today (16 September) – the expectation is that it will be above 9%.

“Inflation is not just in the US or in Europe… it’s almost everywhere”, according to Hamid Rashid, head of the global economic monitoring branch of the United Nations Department of Economic and Social Affairs.

Most countries operate the same system, i.e. calculate their inflation level on the basis of comparing price movements of a set and stable basket of goods, which makes it possible to talk of a consumer price ‘index’. This basket is updated to account for changed spending behaviour – while a cathode-ray black & white TV set might have been included in a CPI in the 1960s, today it wouldn’t – a flat screen colour TV would replace it.

Apart from Australia and New Zealand, who publish their CPI on a quarterly basis, countries update their CPI monthly and release the figures at different times of the month.

In the United States, the Bureau of Labor Statistics is responsible for gathering price data for about 80,000 items a month across more than 200 categories.

Orthodox economic thinking suggests that when inflation rises above a pre-determined acceptable level – the central banks of the US, UK and the European Central Bank aim to maintain inflation at or close to 2% a year – then central banks should step in and raise the basic interest rate, and thus (hopefully) cut demand. Not all central banks follow this policy however; Turkey officially has inflation above 80% but its central bank cut its policy rate by a full 1%, to 13%, on 18 August.

 

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