2021-10-06-牛津经济研究院-UK_Inflation_to_peak_higher,_but_this_is_not_the_start_of_a_new_high_inflation_era_5页_243kb

UK Inflation Research Summary

Core Content

Inflation in the UK is expected to peak higher and remain elevated for a longer period than previously anticipated. However, the analysis suggests that this inflation spike is likely to be transitory, driven by temporary factors rather than a new era of sustained high inflation.

Main Points

1. Inflation Trends and Expectations

• CPI Inflation Forecast: CPI inflation is projected to peak over 4% early next year and remain above 3% until the second half of 2022.
• Short-term Drivers: The rise in inflation is attributed to base effects from the reopening of the economy after lockdowns and rising commodity prices, particularly energy.
• Localized Price Pressures: Inflation remains localized, with only half of the 12 COICOPS categories showing price increases over 2% in August. This is consistent with the average over the previous decade.
• Goods vs. Services Inflation: Goods inflation has surged to 3.3%, double the post-2010 average, while services inflation remains in line with historical levels at 3%.
• Inflation Expectations: Despite recent increases, public inflation expectations remain below the post-2010 average, indicating a lack of widespread concern.

2. Energy Price Pressures

• Petrol Prices: Petrol prices have risen sharply due to higher oil prices and an unusual gap between retail prices and crude oil prices.
• Gas Prices: A decline in European gas supply has driven up gas prices, leading to a 12% increase in the energy price cap as of October 1.
• Impact on CPI: The energy price cap increase is expected to add 0.3ppts to inflation, with further increases likely in April.
• Sterling's Role: A sustained drop in sterling could amplify inflationary pressures, but recent signs suggest the pound may stabilize.

3. Supply Chain Disruptions

• Persistent but Not Permanent: Supply chain issues are expected to last through 2022, but not indefinitely. Some bottlenecks will ease, and market forces are likely to resolve imbalances over time.
• Price Mechanism: The price mechanism is seen as a counterweight to supply shocks, encouraging more supply, efficiency, and consumer behavior adjustments.
• Sector-Specific Challenges: Sectors like semiconductors and energy may be less responsive to price signals due to limited scope for economising.

4. Structural Factors

• Low Inflation Embedded in Behavior: The UK's historically low inflation over the last 30 years has become embedded in price and wage setting, making a return to high inflation unlikely without a major shock.
• Monetary Policy: The Bank of England (BoE) has already tapered asset purchases and is expected to end them by the end of the year.
• Labour Market: While quit rates have increased, they remain below pre-pandemic levels. Labour shortages are not as severe as suggested, and the lack of strong union representation reduces the risk of a wage-price spiral.

Key Information

• Inflation Spike: Driven by base effects, energy price hikes, and supply chain issues, but not expected to become sustained.
• Consumer Behavior: Household savings are lower than previously thought, reducing the risk of a savings-fuelled consumption surge.
• Policy Responses: The government may use the Budget to offset energy cost pressures through VAT cuts or subsidies.
• Long-term Outlook: The BoE's inflation target and structural factors suggest a return to target inflation by 2023, with no indication of a 1970s-style inflation crisis.

Conclusion

Although UK inflation is set to peak higher and remain elevated for longer than initially expected, the analysis highlights that the spike is temporary and not embedded in the economy. Structural factors, price mechanisms, and monetary policy adjustments suggest that inflation will eventually return to the BoE's 2% target by 2023. The risk of a wage-price spiral is low due to weakened labor market dynamics and limited union influence.