British bad - but Ireland is still worse

The bottom line is that working the hardest to adapt to difficult times
Suddenly we are all excited inflation. While perhaps not all: the annual inflation rate in the U.S. is only 1.5%, while excluding volatile food prices and energy prices - just 0.8%. Inflation in the euro area is now 2.2%, higher than the target level of the European Central Bank. In Britain, inflation has reached an uncomfortable level of 3.3% (4.7% in terms of the retail price index), forcing the head of the Bank of England to write the Minister of Finance a letter explaining why inflation exceeded the target of 2.0%. Economic activity in the Western world, hardly meets the definition of activity, therefore demand higher wages is almost useless. So why do prices rise? Economists typically argue that there are only two types of inflation: demand inflation and cost inflation. If demand grows, prices rise. If we increase costs, prices are also rising. In the absence of inflation these forces are believed to remain at the required level. However, recent events make us think. U.S. inflation is relatively low, however, recent events in America are consistent with changes in the Eurozone and the UK. The gap between the base and core inflation rose as a consequence of rising prices for food and energy. This, in turn, reflects the growing demand for commodities. Over the last couple of years prices have increased - whether it be gold, base metals, oil or food. Given the lack of a decent economic recovery in the industrialized world, it seems strange.


However, this is a quite simple explanation. China's economy, Hong Kong and Singapore demonstrate the rise amid the global consequences that have led policy of quantitative easing, particularly in the U.S. and the UK. Investors can borrow cheaply in dollars, pounds or euros and reinvest the proceeds in developing economies with better growth prospects. As a consequence, growth in the developing world leads to an increase in commodity prices, reflecting strong demand for infrastructure (which in developing countries is often severely lacking) and the transition from vegetarian food for meat and dairy products (food people livestock products is ineffective). Rising prices commodity may be a sign of success in the developing world, which, however, is a "tax" for the West. In a world of limited resources, a significant increase in the consumption of commodities in developing economies requires its reduction in other countries. In Western countries, prices are rising relative to wages, lowering the purchasing power and suppressing consumer demand. In this sense, the quantitative easing unexpectedly led to opposite results - stimulating growth in the developing world, it has contributed to higher commodity prices, pushing up prices in the West without a corresponding increase in wages. Thus, the situation has deteriorated further. Although this theory explains the general inflation rate in the West, it is not too good works especially when explaining the curious situation in the UK. This is an indication that central banks have restrictions. Monetary policy turned the independence of British dignity. A couple of years ago, they enjoyed the flexibility of the pound, arguing that monetary independence has provided the UK way out of financial crisis. If the financial sector is not consistent with statements made about him, Britain would simply hold the devaluation to stimulate exports, create jobs and to live happily, even in a time when the Eurozone lurching between crises.

A good idea at the time, but now it does not seem so reasonable. Shop Britain's position when it comes to that, had deteriorated, despite the largest in modern history, currency devaluation. It is well known that during the recession of the trade deficit declined, but mostly it was a reflection of hemorrhagic import requirements, rather than a sudden desire to buy British goods abroad. Indeed, despite the anticipated benefits of lowering the pound, the position of British exports was not the best state in which the export sector was Ireland, although Ireland had been trapped in the Eurozone. Nevertheless, the weakening of the pound led to other consequences. Perhaps it has not led to the restoration of the balance of the so-called "real" economy, however, contributed to this process for the "nominal" economy, providing lower wages because of high inflation. Annual wage growth now stands at just over 2%, while the growth rate of consumer price inflation exceeded 3% (almost 5% in terms of the retail price index). Thus, the financial position of the average British worker is gradually deteriorating.


In many respects, this is an unknown form of inflation. We used to think about the wage-price spiral. Now, despite the relatively rapid increase in prices, wages are not rising. Thus, wages declining in real terms. In the UK, the consequences were particularly severe because of the strong weakening national currency, the more rapid compared with other countries raising import prices and creating opportunities for domestic producers to raise prices without fear of being marginalized from the domestic market. Most inflations lead to a redistribution of income in one form or another. In 70-ies. workers who had large mortgages were in pole position (with respect to wage the real cost of debt is reduced), and retirees with their cash savings lost. Today, among the winners of the government - low interest rates reduce the cost of servicing debt and high inflation stimulates the growth of income - and large companies, not limited to credit crunch - higher profits associated with improved pricing power. The workers are the losers. It is true those who have large mortgages, may still be relatively better off through lower mortgage costs as a result of lower interest rates. However, no more bets may be reduced (and so they are at zero level), and inflation does not want to retreat. Compared with the costs, benefits, more and more in the past.


The bottom line is that working the brunt of adapting to hard times. In this sense, the situation in the UK are not so different from the situation in Ireland, where inflation rate is 0.6%, the annual salary reduction - 1.2%, while reducing real disposable income - 1.8%, almost as in the UK. However, Ireland will have to go through difficult, demanding reductions in actual wages, rather than spending them in secret by rising inflation. Taking into account that unemployment in Ireland amounts to 13% compared to 8% in the UK, there is no doubt that the country was in a difficult situation. Again, given the fall in the pound against the euro, it is not surprising: we have to some extent exported them to their economic problems.