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.

Great answer.

I think China's 0 covid policy has had a profound knock on global supply chains, which like it or not has increased global prices for a lot of goods and raw materials.

Finally, inflation is global right now, our inflation in particular may be slightly higher than European and US counterparts but our economic prediction is a lot better than the majority of other EU countries. The UK is now expected to avoid recession, Germany on the other hand, is in recession.

@marsbarr

Can you explain why our economic prediction would be better than that for EU countries like Germany, given Brexit etc?

I was wondering about this recently. I read an article in a German broadsheet about falling/ disappointing levels of FDI in German companies. The thrust seemed to be that Germany had expected to benefit from a big fall in FDI for the UK after Brexit, but that hasn't happened.
France seemed to be faring better than Germany, tho.

In my opinion it’s nothing to do with brexit / covid / high fuel costs. Fuel / energy costs have fallen quite a bit and they have certainly not risen so this is not an excuse for the cost of food and basics rising.
Fuel cost has certainly decreased a lot and petrol / diesel is not much more than it was before it went up dramatically, yet we haven’t seen a dramatic drop in the price of anything.
I think supermarkets have cottoned on to the profit of panic buying, shrinkflation and possible price fixing going on. Look at eggs, tomatoes, toilet roll etc. The press talks about a nationwide shortage because one or two london shops have run out of an item. Everyone starts panic buying said item all over the country. Supermarkets are a bit slow on restocking shelves and suddenly the price has risen due to supply and demand. Until someone addresses this issue, inflation will continue to rise.
But hey, let the press continue to report on Philip schofield or Boris Johnson instead of putting pressure on the government over real issues such as the cost of living or the sorry state of the nhs and apparent ambulance shortage.

I’ve been thinking the same but nobody seems to be saying this. It just doesn’t make sense although I know I may be missing something. 🫤

Isn’t Germany’s main problem that Russian energy was a mainstay of their economy?

One of the reasons is that the money supply (amount of money in the system) increased by c. 10% over Covid.

I do live in a good area but nobody I know is ‘poor’. Food can be managed by not buying branded things and shopping around. Most I know are still going on at least 2 holidays abroad.

Our inflation rate is not "Slightly higher than European and US counterparts" It is a lot higher, over double in some cases.

US inflation is 4%, France 5.7% Germany 6.1%

UK is 9%.

UK inflation for April was 8.7%. The average inflation in the EU for April was 8.1%.

8.7% IS slightly higher than 8.1%!.

Interesting that you pick out isolated EU countries with lower inflation. Why didn't you pick out the ones with higher inflation such as most Eastern European countries

The bloody strikers

When interest rates were crucifyingly low for many years for those retired, there were examples of house buyers exulting that their mortgages were costing them 'virtually' nothing. Those who sensibly took advantage of that and paid off chunks of mortgage are the ones smiling, now they can cope with increased rates.

Pensioners and retirees lent their savings over the decade
(plus) and bit the bullet when they received a pittance. They couldn't
spend then. Now, they still refrain from spending, trying to make up
somewhat for those lost years, as their health declines and funds pressingly needed.

On consumer programmes I am amazed how many people seem addicted
to borrowing for items that their grandparents, and even parents, would have
denied themselves, to avoid debt. I am forever thankful I had a Scottish father
who was terrified of debt and passed on that fear, He died before he might have
spotted the fresh and novel monthly borrowing-vehicles on TV, offering loans at APR's of almost 100% in the small print at the bottom of the screen.

Finally: Tickets for Glastonbury and similar concerts sell out within an hour or so. Are these all wealthy people? When seen cavorting in the mud, they don't appear so. In Denmark, Beyonce's ticket sales alone are said to be responsible for a jump in inflation there.

Brexit must be to blame. That and the gas price because of Ukraine. That’s because other Euro countries haven’t suffered as much from inflation. However, what I don’t get is how the gas and electricity prices have gone up because Ofgem allows it, but the gas companies have made billions in profits .

We're just over the EU average for inflation, so, basically around half the EU have lower inflation and half have higher inflation. We're very much around the middle!

I can explain it. The government needs to devalue money because it has so much debt (all the 'free' stuff like education, hospitals, doctors and now 'childcare' paid for by debt, which the tax payer services. The government therefore prints more and more money (quantitive easing) to help service all the debt. This makes the value of money decrease leading to inflation. Covid, War in the Ukraine, all expensive for the government. Here is a good explanation about how it works: 4

Hungary has 25% inflation.

The UK is a very large economy, with Europes second highest population, only behind Germany, as far as i'm aware, we are not comparable to former Soviet bloc economies, which have only been independent since 1991? and not in the EU until early 2000s...

Why should we be compared with these countries?

So EU wise, we've Germany, France, Italy.. perhaps Spain.... and we have much higher inflation than all but Italy, which is often considered a bit of an economic basket case, unfair really.
Lets look at Japan, 3.5% Switzerland 2.2%

I included the USA as tory ministers have made comparisons to the USA in the recent past.

Yep, that's what you get for shutting down all your coal and nuclear plants without a plan to replace their output without relying on gas.

How is that average calculated? If it just a simple average of the inflation rate of each EU member state added together and divided by 26, it is a rather meaningless number as it doesn't take into account the size of the various economies or their economic and fiscal management.

Hungary is a basket case with very high inflation, but comparing us to them is obviously a flawed comparison.

Germany is sitting pretty, its debt to gdp ratio is 66.5% the UKs is 100%.

UK hasn't had debt under control like that since 2010.

TBF to Germany, no one, not even the Capt Hindsight posters on MN could have predicted Russia would invade Ukraine and become a rogue state almost overnight, it caught everyone out.

@Howpo - regarding predicting what Russia did... I don't want to blow my own trumpet and didn't even follow politics in that part of Europe particularly, but I kept hearing about Russia supplying so much of Europe's gas and a couple of years ago I predicted this would be used against the rest of Europe in a war or invasion.
And wasn't it always on the cards since they annexed Crimea?

I don't understand that either. Or that supermarkets are making record profits?

Where are these higher wages PP speak of?

Financial services, tech, big law firms.

The £40k entry level job my DH took in 2017 now pays £55-60k. That's a pretty hefty increase, and above inflation.

Also interesting to think who benefits from this and who doesn’t and why it’s not really being scrutinised in the media

The Crimea situation was a pretty big warning as to Russia's intentions!