inflation-growth-and-retail-spending
Interesting view from the excellent Richard Jeffrey, chief economist at Cazenove Capital Management, on why inflation has stayed so high even though growth has been weak. Normally, when the economy is suffering, you would expect prices to be more restrained – producers can't push up prices when their customers are losing their jobs, suffering pay cuts, or generally short of cash.
True, there have been various upward pressures on prices – like oil prices and transport costs, which affect just about every product. The falling pound has made imports dearer. But even this does not explain the high rate of inflation in the UK.
Jeffrey's answer is that families have been very focused in how they have economised during these difficult times. They have cut out big- ticket items like air travel. But equally, plummeting interest rates have left them with more day-to-day cash in their pockets – which they have spent on more day-to-day items like clothing and footwear (with spending on these up 4.8% in real terms). So despite the depth of the recession, retail spending has actually increased.
