Inflation – causes and examples from the global economy.

Here is an excellent video from CNBC which includes news clips from the 1970’s and beyond. Below are some of the main points:

• 1960 – pint of milk in the UK 3p. Today 50p
• Cost Push Inflation – today: supply-chain bottlenecks, shipping costs rising, labour shortages
• Demand Pull Inflation – usually associated with an economy operating near full capacity
• Milton Friedman – inflation a monetary phenomenon and the domain central banks.
• With the expansion of money why has there been little inflation recently? Velocity of circulation is not evident – i.e. number transactions.
• CPI – Headline Inflation but Core Inflation is more valuables it takes out volatile components of the CPI which have no reflection on the strength of their economy – e.g. oil. Gives you a better idea of the inflation trend.
• A little bit of inflation is good – ‘Goldilocks’ not too hot but not too cold.
• Hyperinflation – Brazil – 1980-1995. Weimar Republic – issues 100 Trillion D Mark note.
• !970’s – Stagflation – wage price spiral – higher interest rates 20% – trade-off was the higher unemployment rate.
• Central Banks – focus on inflation but also avoid a deflationary environment.