How inflation has come back from the dead
Inflation has made a sudden comeback in the US and elsewhere, but it is still too early to talk of a new inflationary trend.
Inflation has made a sudden comeback. America’s core consumer price index (CPI) – which strips out volatile food and energy costs – jumped 0.6% in July compared to June, the biggest monthly rise since 1991. In annual terms, core US CPI advanced by 1.6% last month. In Britain inflation is more subdued, with prices rising by 1% year-on-year in July, but that figure still surprised on the upside. UK core inflation rose by 1.8% year-on-year last month.
Jonathan Allum notes in The Blah! newsletter that even in Japan, “where inflation went to die”, producer prices rose by 0.6% in July on the previous month, although they remain down on the year. In China inflation rose to 2.7% last month. Widespread flooding in the country’s south has caused a spike in food prices.
The jury is still out
The “shocking” US inflation point is certainly a challenge to those like me who think we are heading for a deflationary meltdown, says Albert Edwards of Société Générale. Nevertheless, there is not enough data to draw firm conclusions yet. Falling rents have yet to feed through to the inflation figures, for example.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
It is too early to talk of a new inflationary trend, agrees James Knightley in ING Think. Rising inflation may have been caused by an “unwinding of the strains” caused by Covid-19 shutdowns. But with 30 million unemployed in America, wages – the crucial input into prices – are going nowhere fast.
Deflation remains the greater immediate threat, says the Financial Times. The economy is just too weak to drive a classic “wage-price spiral”. That said, central bankers are coming under greater pressure than ever before to bow to the will of politicians, who prefer easy money. If the bankers don’t have the guts to raise interest rates “when the time comes” then we might eventually find ourselves back in the 1970s.
The pandemic has drawn the curtain on the era of low inflation, says Philip Aldrick in The Times. Since the fall of the Berlin Wall globalisation has kept labour prices low – think of all those cheap Chinese imports. Yet now trade decoupling is undoing some of those gains (see page 4) and the baby boomers are retiring to be replaced by a smaller pool of workers who will consequently have more bargaining power to demand wage hikes. “It’s hard to argue against demography”.
MoneyWeek’s view is that the economy is heading for an inflationary denouement. The Bank of England has unleashed £300bn in quantitative easing in a matter of months, equivalent to about 35% of all government spending in the last financial year. Unlike in 2008, this new money is not being used to repair holes in bank balance sheets but is likely ultimately to find its way into the real economy, causing rising prices.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
Michelin Key Hotels 2025: the top destinations in the world
The Michelin Keys have been awarded to spectacular hotels across the world. From Marlon Brando's private resort in Polynesia to a Bvlgari hotel in Tokyo, we look at some of the most extraordinary stays in 2025
-
MoneyWeek news quiz: How much could you get in car finance compensation?
The car finance scandal, inheritance tax, and house prices all made headlines over the past few days. Test your knowledge while reviewing this week’s top stories with MoneyWeek’s news quiz
-
Why investors should avoid market monomania
Opinion Today’s overwhelming focus on US markets leaves investors guessing about opportunities and risks elsewhere
-
Can Rachel Reeves save the City?
Opinion Chancellor Rachel Reeves is mulling a tax cut, which would be welcome – but it’s nowhere near enough, says Matthew Lynn
-
Global investors have overlooked the top innovators in emerging markets
Opinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money
-
Investors should cheer the coming nuclear summer
The US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
Healthcare stocks look cheap, but tread carefully
Shares in healthcare companies could get a shot in the arm if uncertainty over policy in the US wanes, but are they worth the risk?
-
The Palace of Westminster is falling down
The Palace of Westminster is in need of repair, but the bill is prohibitive, says Simon Wilson
-
'Gen Z is facing an AI jobs bloodbath'
Opinion It has always been tough to get your first job, but this year, it's proving tougher than ever. AI is to blame, says Matthew Lynn
-
Should the Online Safety Act survive?
The Online Safety Act, a measure to safeguard children, is having unintended consequences