Merryn's Blog

Britain's inflation 'problem' isn't as unusual as you think

Received wisdom has it that Britain's inflation is unusually high when compared to other countries. But is that really the case?

We constantly hear about how the UK is an outlier in the West when it comes to inflation. While our CPI is running at 3.7%, prices are barely budging in other countries the US in particular. That's grist to the mill of the deflationists (whose cause we have enormous sympathy with).

But is it really so? Perhaps not.

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In fact, according to Simon Ward at Henderson Global Investors, US inflation might not be so low after all. Recalculate it using the European Union's "harmonised index of consumer prices (HICP)" methodology and it turns out that US consumer price inflation is almost the same as UK consumer price inflation an annual 3.5% in April. US core inflation (excluding food and energy) would also be much higher using the European method 2% not 0.9%.

You can argue the toss on the methodology with this one but it is worth noting that on the same method, Eurozone CPI comes in at about 1.5% that's a significant difference. So why might inflation be more obvious and so very similar in the US and UK than in Europe?

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Presumably because both of them have followed very similar monetary policies since the beginning of the financial crisis lots of QE (money printing) and the tolerance of weak currencies. Something for both the inflationists and the deflationists to ponder over.




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