How was the United Kingdom’s inflation rate affected by the pandemic

It appears that the recent market changes may be causing shifts in terms of investors’ interests, as a lot of crypto sceptics have finally started to change their minds. All of that happens, as cryptocurrencies seem to be becoming the way to protect the funds from inflation. In the meantime, others are eagerly looking at gold, rediscovering its virtues.

And with the intensified concerns regarding the future of the United Kingdom’s economy, it appears that the U.S. could possibly be very decisive when it comes to that topic. Jerome Powell, who is the Federal Reserve Chairman, would recently speak on CBS News, that the economy seems to have reached the point of inflection. His theory would suggest that there will be more jobs, and the economy will be growing.

And while the rollout of Covid-19 vaccines is still topic number one in most countries, the threat of inflation seems to be inevitable. Since the vaccines arrived, there have been a lot of concerns in the UK whether the Bank of England will be capable of dealing with the growing inflation rate.

But even with a lot to worry about, the rates seem to be lower than expected, which could potentially bring some hope (but it still doesn’t mean, that we will avoid inflation at all). The inflation rates could also be relatively easily explained by the current events in the country.

How did the pandemic affect inflation?

ONS (Office for National Statistics) shared information, according to which the current UK inflation rate is 0.4%. It’s supposed to be related to the easing of CPI (Consumer Prices Index) rates. It’s really a piece of good news, as in previous months (December 2020 and January 2021) the inflation rates were 0.6% and 0.7% (respectively).

The increase was the result of the higher food and household goods prices, as well as canceling most of the discounts on those products. But right after that there was a sharp decrease in the inflation rate, as the clothing retailers and dealers of second-hand cars managed to offer impressive and attractive occasions for their clients (therefore tempting them to spend more). After that happened the inflation rate fell to 0.4%.  ONS suggests that it’s a rather steady pattern of changes in pricing that occurs regularly throughout the year.

Inflation could also (apart from the amounts spent by the consumers) rise with the planned government’s extension of economic support. Currently, the officials are spending to provide Covid-19 relief. And there has been a slight improvement in the unemployment rate, as well as the commodity prices (which had fallen before). This could potentially mean another contribution to inflation.

Currently, the level of inflation is at least below the target rate that the Bank of England announced: 2%. Their decision was certainly driven by the pandemic decrease of the goods and services demands, which seemed natural during the lockdowns. With that, as well as other factors in mind, the experts predict (but some argue with them) that we’ll witness the prices’ snapping back when the lockdown is fully lifted.

What effect did it have globally?

The United Kingdom aren’t the only one dealing with these issues right now. The United States currently have the same inflation level (0.4%), with the reasons for that to be found in the decrease of use of airlines and second-hand transportation. And they of course (just like the UK) are providing serious funding to ensure the relative stability of the economy at the moment. Also, there the relief packages seem to be more and more of a threat, intensifying the future inflation hit.

But there always could be worse, as countries like the Philippines struggle with hyperinflation. The lockdowns have hurt the economy very much there, and locals stopped purchasing at stores. In February the inflation rate was 4.7%, with prices spiking.

To read the detailed take on the topic of inflation, and find the comprehensive analysis, visit the Disruption Banking piece by Betty Jordan: https://disruptionbanking.com/2021/04/12/how-did-the-pandemic-affect-inflation-rates-in-the-uk/.