Columnist
John Campbell Economics & Business Editor, BBC Northern Ireland
Roaring Inflation BBC NI’s Economic & Business Editor, John Campbell, on the rising inflation that we are facing in 2022.
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nflation has roared to the top of the economic agenda in a way that’s probably outside the experience of anybody younger than about 50. Much of the public debate has focused on how central bankers and other policymakers should react. There are basically two schools of thought: those who think it is largely transitory, a predictable result of postpandemic supply chain snarl-ups along with some statistical base effects. They argue that raising interest rates too far and too fast will do nothing to resolve the supply chain problems and needlessly hold back economic growth once the extraordinary levels of government support roll off. The other school of thought sees structural changes to the economy such as a smaller workforce and ‘deglobalistion’, which are inherently inflationary. They argue that central banks need to act aggressively to counteract this and stop expectations of higher inflation becoming ingrained.
But there is another discussion happening about whether current measures of inflation are of much use to ordinary people trying to understand the economy and their place in it. This has been led by the food poverty campaigner and chef Jack Monroe. She had carefully noted how some supermarket budget products had increased by much more than the average rate of inflation while others had been withdrawn from sale altogether. The upshot of this, she contended, was that people on low or modest incomes were facing a higher rate of inflation than the headline figure would suggest. The Office of National Statistics (ONS) met Ms Monroe and issued a slightly defensive statement explaining that it is already working on ways to produce a more granular analysis. It is worth understanding how the ONS constructs its most widely used inflation measure, the Consumer Prices Index (CPI). It measures the changing price of around 700 specific items
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that are representative of the average household’s spending habits. This ‘basket’ is regularly updated and reweighted to reflect changing consumer tastes. The 700 items are monitored by sending people to shops around the UK to check prices, which produces 180,000 individual price points. The first innovation being worked on by the ONS is to instead analyse hundreds of millions of price points by using data sent directly from retailer checkouts and other data suppliers. By using this data that records every purchase, the ONS hopes to reflect price rises more accurately. Other upcoming work from the ONS includes analysis which will attempt to explain the drivers of inflation in selected sectors such as food and transport. In part this will try to track how changes in producer prices are passed through, or not, to consumers. There will also be a piece of work looking at the public sector and how public services are likely to be affected by inflationary pressures. But it is work that’s in line with
