Why is there high inflation?
In this blog, I will be covering: · Why prices are rising · What should the government/ central bank do? Inflation is the general increase of prices in an economy, typically shown by a rise in the consumer price index (CPI). CPI is the measure of the change in the price of consumer goods weighted by goods and services purchased by households, CPIH is CPI plus housing costs. In the past 12 months up to June 2022, CPIH has increased by 8.2%. This means that consumer goods in June 2022 are 8.2% more expensive than they were last year, effectively reducing the real value of money. Inflation can be caused by many things: a reduction in short-run aggregate supply (SRAS) [1] and/or an increase in aggregate demand (AD), an increase in the money supply (according to Fischer’s equation MV=PT or MV=PQ) or a change in foreign exchange rates (depending on whether the country is a net exporter or importer). Why has inflation (in the UK) been so high? The root cause is th