How is inflation high when everyone is so poor?

[Orchidgal]

Please explain to me like I am three.

The explanation I have received is:

Everyone saved loads during the pandemic and the government printed and handed out loads of money.

So, there is too much money sloshing about in the economy, causing prices to rise (inflation) and so the government put interest up to stop people spending and borrowing more.

Except that bit about there being loads of money so needing to reign everyone in doesn't make sense to me. Everyone I know is financially stretched.

As far as I see it prices going up has nothing to do with people ‘having too much money’. So why is higher interest rates the answer?

I don’t geddit.

We’ve been screwed over haven’t we?

I think whats happening is the country becoming poorer and poorer. The UK is already poorer than it's EU counterparts.We've had decades of static wages ans even now they are not keeping up with inflation. People will get even poorer

Funnily enough, in another discussion, I saw this:

It does really beg a question about what happened between August and October 2022.

Some people will get poorer ....

Yes it really feels that way.

This is what happens when you shut a country down and pay people to sit at home doing nothing for nearly 2 years.

now we’re facing the backslash of that. We just have to ride it out and eventually things will even out.

That plus Brexit and Trussonomics

indeed.
High interest rates are lovely for the wealthy!

Part of the UK-specific problem is that the decade of ideological Tory austerity left us in a very poor position to deal with Covid - and of course Brexit, which could have been delayed during the pandemic but no, Johnson ploughed it through anyway - there were no reserves to dig into. Then Truss and Kwarteng plunged us into massive debt - with absolutely fuck all to show for it.

Please don’t vote Conservative again. Their 13 years of power will take 30 years to put right, and I’ll be long dead by the time the UK recovers.

Oh interesting, I’m not sure what to make of it though. Do you have a theory?
(It’s not sensitive content, no idea why there’s a warning)

@SerendipityJane i think average person will get poorer and some unexpected groups like middle class londoners with large mortgages. People used to tell me that inflation is good because it eats away at debt which is true but only if your wages go up but for a lot of people they just haven't much unlike in the 70s. And don't even start on AI and job losses

Heh, don’t tell me you’ve forgotten Truss and Kwarteng’s disastrous 6 weeks as prime minister and Chancellor?

Haha no, I’m just a bit puzzled about why the Royal Mail is especially significant! Or maybe it isn’t and is just an example?

I'm not sure people saved a lot during Covid, I think they reduced their debt (mortgages etc).
One reason for raising interest rates is it attracts foreign money. Why keep your $ in an American a/c at 2% if you can place it in the U.K. and get 4%?
For U.K. consumers, when interest rates were 1% there was no point in saving in the U.K, the return wasn't worth the bother. Might as well spend it on a holiday instead - means money goes overseas. But with 4%, more likely to save it/ spend it on increased mortgage payments, and keep it in the U.K.

It flashed past my screen early today - that's all.

Here's another, in case it was an outlier ...

Ah, sorry, hadn’t even noticed it was a Royal Mail shares chart! Just looked at the dates, which coincide with Truss and Kwarteng’s destruction of the UK economy, which benefitted absolutely no normal working person, and we’ll be paying for in spades, for years.

This 😂

Also, the guy running the Bank of England seems particularly ropey at the moment and not very down to earth. Shame the Brexiteers drove Mark Carney away.

One reason for raising interest rates is it attracts foreign money. Why keep your $ in an American a/c at 2% if you can place it in the U.K. and get 4%?

You have to trust the UK to pay up though. And that needs trust in it's governance and government. And ICYMI

https://www.investmentweek.co.uk/news/4117715/us-business-confidence-in-the-uk-falls-for-third-consecutive-year

“Shame the Brexiteers” would have been a complete sentence on its own.

What makes you think that "everyone saved loads" during the pandemic? Loads were furloughed and not receiving their full pay. Most were at home much much more so used more energy. The government didn't print money and hand it out by pushing it through the letterboxes of ordinary folk. You experienced a very different pandemic to a lot of people I know.

https://www.reuters.com/world/uk/why-does-uk-have-such-painful-inflation-problem-2023-05-24/#:~:text=Britain%20has%20struggled%20more%20than,of%20Britain's%20high%20inflation%20problem.

Reuters think it energy prices - our reliance on gas, our reliance on imported food we're third largest net importer of food and drink leave us exposed to world prices increasing due to wars and bad harvests- and worker shortage.

I think interest rates are one of the few mechanism they have to pull on - but aging population mean higher percentage of population have already paid off mortgages and many who haven't have fixed delaying any impact - so it has less effect than in 90s.

I think the effect is harder economic environment for younger workers and poorer getting poorer.

3 million self-employed people got nothing during the pandemic, including my partner. We lived on my pension for 2 years, and racked up a £10,000 credit card bill that I’ll be paying back for years.

Quantitative easing (printing money) for many years. Money isn't worth what it was, currency is devalued.

I think interest rates are one of the few mechanism they have to pull on

Or the only one they are prepared to use. Not quite the same thing. I have long learned that "can't" is often used quite incorrectly where "won't" should be used. A little like "Can I .... ?" and "May I ... ?" that we were drilled in at school.

And you know who to thank for the rates you will be paying it back at ...