Britain’s Inflation Rate Slows Slightly to 9.9 Percent

Core inflation, a measure of price increases excluding volatile energy and food prices, was 6.3 percent in August, rising slightly from 6.2 percent in July.

What the Bank of England cares about, Huw Pill, the central bank’s chief economist, said earlier last week, is the impact of fiscal policy changes over the medium term, as opposed to any short-term decrease in the main inflation rate.

Economists expect the bank to raise interest rates by another half percentage point, to 2.25 percent, when policymakers meet next week. The meeting was postponed by a week, until after the national mourning period for Queen Elizabeth II.

But the shallower outlook for medium term inflation makes it less likely policymakers will need to “strangle the economy” by raising interest rates as high as 4 percent, which traders recently anticipated, Mr. Tombs wrote.

The path of inflation in Britain has been heavily influenced by energy prices, particularly natural gas. But even when energy prices fall, the impact on inflation will linger. Over time, businesses and workers will continue to adjust their prices and demand higher wages to make up the lost profits and diminished purchasing power caused by higher inflation. This challenge, and the effort to keep expectations about future inflation low, is why central banks have been raising rates in larger increments.

On Tuesday, data showed that inflation in the United States didn’t slow as much as economists expected. This keeps the pressure on the Federal Reserve to aggressively raise rates, and the SP 500 index dropped more than 4 percent, its worst day since June 2020, in anticipation of the central bank’s moves.

Article source: https://www.nytimes.com/2022/09/14/business/britain-inflation.html