Home > Finance and money > It’s Stagflation Jim, but not as we know it

It’s Stagflation Jim, but not as we know it

I was intrigued by Stephanie Flanders recent post on the UK Inflation figures.

The piece doesn’t really seem to be addressing the bigger picture on the recent dynamic in the UK economy. For at least a year, if not two, we have had the following situation occuring in UK household incomes & outgoings in price change terms:

Incomes:
- Interest rates on savings at 0.5%
- Wage increases at ~1%

Outgoings:
- Headline inflation at ~3%
- Inflation on food, fuels and other essentials over 5%
- Credit card & other unsecured debt at 10-25%

So we have costs going up, but incomes stagnant. This looks a lot like the symptoms of stagflation, yet very few mainstream media outlets dare use this term.

My apologies to Peter Warburton for contorting the title of his prescient article from 2001:

“What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies.”

It’s inflation Jim, but not as we know it

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Update:

2011 Stagflation, the new normal

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Categories: Finance and money
  1. January 20, 2012 at 8:49 am | #1

    Stagflation is even easier trick to pull on the masses, if everything looks under control in Nominal terms. However, the UK’s purchasing power (in relation to the dollar) shows a worse picture:

    “The magnitude of the blow suffered by the UK economy since the beginning of the financial crisis is very considerably minimized by not presenting it in terms of a common international yardstick. Gauged by decline in GDP, using a common international purchasing measure, dollars, no other economy in the world has shrunk even remotely as much as the UK”

    http://ablog.typepad.com/keytrendsinglobalisation/2012/01/the-incredible-shrinking-uk-economy.html

    A decline of 20%, which if one looks at the rising cost of food, energy & transport (subject to high import costs) then we would get a roughly comparable rise in costs (20-30%), which has been disguised in the broad basket of CPI goods and services.

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