US v UK Inflation

R

runnermint

Hi All, I have been thinking about the slight divergence between US and UK inflation rates that's taking place lately. We understand that central banks from both nations have implemented a huge amount of quantitative easing for economic stimulation but UK's inflation rate has been persistently above their inflation target of 2.0% whereas US' inflation rate has trended downwards (after QE3) and it's currently below the Fed's 2.0% target.

I have overlaid the CPIs (y/y) with their respective exchange rates, wage (unit labor cost, average wage), productivity levels, import price, commodity price, housing price and a couple more studies and they were helpful in understanding that apart from QE, there were also other factors that contributed to higher inflation rate in 2011-2012. However, in the period after 2012 to present, I can't exactly pin-point to why UK's inflation rate is stubbornly above 2.0% and US' is below the 2.0% target.

Can anyone offer any opinions or shed some light on this matter? I would be willing to explore any opinion posted. Thanks so much for the help.

runnermint
 
Inflation is the increase in the supply of money and credit, so just look at the size of the central banks' balance sheets and you can see the massive inflation unleashed (China imports a lot of it, as do EMs). Rising prices and malinvestments due to interest rate distortions are the symptoms of inflation, and in gauging the prices aspect, the STATISTicians at the B(L)S use sleight of hand like hedonics and substitution to keep it low. TVs are not something people buy every day; food and fuel are.
 
I'm really tired of you making up inflation numbers.

I go by the FED inflation numbers because the market reacts to FED inflation numbers, not to your numbers. QE doesn't inflate the economy on impact - it takes years for the inflation effect to be felt in the economy.
 
look at stocks and bonds; there is the inflation showing up right there. And in China as well, where they are productive but also have tons of malinvestment like the ghost cities.

The inflation already unleashed will destroy the economy eventually. Propping up failing companies, TARP, etc. is not capitalism.

Look the average housewife in the eye and tell her that prices are only rising about less than 2% per year. And EVEN IF prices were rising 2 % per year, that means one's purchasing power is down 22% in just 10 years. How is that 'acceptable'? And I don't want 'stable' prices; I want falling prices, so people who produce value are reaping the benefits of their productivity, as opposed to having it siphoned away by the Zionist usurious system.
 
The answer to your question is that it's a result of a few things:
1) UK is a much smaller and much more open economy than the US, which makes UK inflation more sensitive to exchange rates and other non-domestic factors.
2) UK implemented VAT hikes after the crisis and this has kept inflation quite a bit higher than it would have been otherwise.
3) The most important observation is related to the point 1 above. Specifically, from its mid 2007 peak, trade-weighted GBP lost smth like 20 - 25%. During the same period, trade-weighted USD is virtually unchanged and was ever only down 10%.

All this, obviously, applies only if you're willing to look past all the random "conspiracy" noise about the inflation measures.
 
US is going through one of its periodic import replacement cycles, in this case energy. Partially as a result of our now cheaper energy, some manufacturing is also coming back to the US. Part of what's hurting the EM's is that the US current account deficit is falling, meaning we have to import less. CA deficit was 214 billion in one quarter in 2006. It's now running at less than 100 billion a quarter. The EM's, for obvious reasons, get hurt by that.
That also of course helps the value of the dollar, as noted above, which keeps import prices down.
Combine that with a fall in the rate of healthcare inflation, and an economy that is running under its long term potential, and you get some friendly numbers.
 
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