From Stephanie Flanders’ blog:

Sorry to bang on, but where in this graph can you see any risk of inflation? I can’t find the data quickly for back to the 1970s but I suspect it was double figures.

Oh, I got a small letter in to the FT.  Not sure how long I can stand by the title – it was a pedantic letter.  But I would like to return to the theme – of ‘punchbowlism’ – later


2 thoughts on “Quick graph of the day

  1. The graph should have “growth” in the title – wages are still rising.

    What about margins?

    What about £? – Ford have put up the price of cars what, 5 times, in the last 12 months?

    There is more to inflation than wage growth

    1. Yes. I am of course just looking at a component on the demand side of the equation. Other factors affect demand beyond growth of wages, and if supply is totally crunching at the same time, then inflation can rise. To illustrate, of course, no one cares what is happening to Iceland’s wage growth. Very fair point.

      But given the quiescent demand, I would need to see evidence that supply was totally crunched, to use a non economic phrase, to believe in inflation. If we are in that situation – if after a 10% fall in NGDP we are somehow already bumping against the ceiling, even with unemployment higher and so forth, then we really are in real trouble, 1970s style. But I see nothing in the inflation figures to suggest that – as you pointed out, we have mostly VAT-effects. And the pound is higher since March, so surely within 12 months most of those lagged effects will be done.

      I also notice this from the CPI release:

      ‘Within transport there was also large upward pressure from the purchase of new cars where prices rose slightly this year but fell a year ago. The 2.1 per cent decrease between November and December 2008 was the third largest monthly fall in the price of new cars on record and was largely due to the reduction in the VAT rate in December 2008 to 15 per cent from 17.5 per cent.’

      But you have a closer eye on such matters than I do.

      Hooray, I have found a way of getting my netbook to work on 3G!

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