Inflation is the CONTINUOUS RISE in the general price level, reducing the purchasing power of real incomes. This rise is due to three main factors:
1. A rise in university tuition fees.
2. A rise in food prices due to the poor weather
3. A rise in energy bills
The Bank of England is supposed to keep inflation at 2%, but are allowed a 1% margin before they have to apologise. Should they really be concerned with this rise?
Well 2.2% was a 34 month low for inflation and so things seemed to be coming back under control, so this will be a blow to the men from Threadneedle Street. But the first two factors that caused inflation must be seen as 'one-off' influences. Tuition fees will not rise as much next year (from £3k to £9k this year) and it is unlikely that the awful weather of this year will be repeated next year.
So both the first two influences will drop out of the index next year. As for energy bills this market is known to be volatile and so there is little that can really be read into the price rise in terms of future inflation.
Also inflation is really concerning when it affects everybody. Tuition fees affect only a small proportion of the population, but the current massive rise makes the index jump significantly despite the small weight it is given in the basket.
So the Bank of England will almost certainly carry on looking at underlying inflation when setting interest rates and not the headline figure. Overall demand remains weak and while there are encouraging signs of recovery it is unlikely that interest rates will rise until well into next year even so.
It's quite sad news if you are a student. Not only does the tuition fees hike mean quite a lot, but also the fact that food prices in particular potatoes are increasing too. Not only that, but confectionery prices are going up too-because they are decreasing in size which makes the more expensive per gram. All in all bad news for students.
ReplyDeleteTim.
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ReplyDeleteI agree with Tim. Inflation is too high and worse of all the whole tuition fees rise was a broken promise. Perhaps it is time for the Bank of England to slightly increase interest rates and cut indirect taxes in order to lower inflation.
ReplyDeleteSerious inflation rate will of course worry people because Inflation is the continuous rise in the general price level. In other words, reducing the purchasing power of real incomes. That means people's income will decrease in real term. However, form the three main factors of rising in general price level, the university tuition fees have an upsurge and this makes the situation of a small proportion of population ( probably university students ) even worse. They suffer from expensive tuition fees as well as the rise in food price. thus they have a greater burden then the general public do.
ReplyDeleteTherefore, in short, this may be a sad news to the general public, but it is surely a bad new to the university students.
Eric Leung.
I concur with this- students have been left in a difficult situation. Having to pay nine thousand a year solely on tuition has resulted in students deliberating over weather it would be worth going to University or not; this relates to opportunity cost- would the money be put to better use elsewhere. However we must not forget that inflation is at its most concerning when it effects everybody. A rise in university tuition fees only effects a small proportion of the population- perhaps the majority of concerns should be focused towards the general working population.
ReplyDeleteWell said Mr.Armoo, uni undergraduates such as ourselves are looking at making important investment decisions at the meer age of eighteen. The stress that comes with uni tuition fees is undesirable and to some extent undescribable. 9,000 a year on fees alone makes the future seem less optimistic in my eyes. I feel that though uni students take up a small part of the population, students shouldnt be discredeted never the less as we are the future, and the economy relies on the skills of academics like Tim and I to come along and rescue economies at times of need. I'll have you know when I become rich I will be more selfish then the decision makers on the pricings of the tuition fees.
ReplyDeleteUnder the inflation, the purchasing power of money will be decreasing as the general price level is increasing continuously. The increasing of tuition fees of the universities may upset me as I will need to pay more for a degree in the future. However, I think this only affects a small proportion of people, which are the students in England. The rises in food price and energy bills, undoubtedly, will generally affect most of the people.
ReplyDeleteIn order to regulate a gentle inflation rate, The Bank of England introduces some policies such as slightly increasing the interest rate to lower the consumption and investment. Of course, if the general price level tends to decrease, The Bank of England can lower the interest rate.
We need to be reasonable here. We are still in the anticipated inflation range. A 0.5 per cent increase; most of the population can deal with. Yes students will be strained, but it looks like from now on they always will be. What I am concerned with is the amount of households which will be plunged into fuel poverty this winter due to rise in energy bills. We currently have 0.2 per cent greater inflation than the Euro area and we need to think about the competitiveness of domestic product with our neighbours.
ReplyDeleteLeeza Awojobi, wouldn't let me log in
Thankfully inflation is only increasing due to the increase in tuition fees, food prices and and energy bills. Even if it wasn't due to these things, it is still in the 1-3% inflation range and not too much of a problem.
ReplyDeleteThe increase in tuition fees does represent a problem for students however but I think they will cope with it. Food prices, as long as they don't spiral out of control can be coped with.
Jason Luong
The rising tuition fees are definitely a worrying prospect considering that we will be paying them in just two years’ time. Although the inflation may be just below 3% it will make all the difference to the living costs of an average household, whilst I can accept paying a higher cost for my education as hopefully the long term gains will be worth it, the huge inflation of prices in the goods that we need to survive is not a particularly comforting thought. I do also agree that as the rise in tuition fees only affects a small proportion of the population, but the rising food prices and energy will affect a much larger proportion. In turn this decreases the amount that their incomes can actually purchase. While the thought of higher tuition fees is a worrying one, I think we should worry more about the inflation which will cause many households to struggle to pay for the basics this winter.
ReplyDeleteSascha Haigh
As long as the inflation rate stays between 1-3% it shows that our economy will still have stable economic growth. Obviously the most worrying part out of all of this is the rise in tuition fees. However as mentioned in the article the rise is unlikely to occur again next year and that would also be the same with the bad weather. These issues will also lead to consumers becoming more cautious with spending which definitely isn't a bad thing but neither is it good. It could lead to movement away from the market equilibrium and excess supply occurring and these were similar events leading to the great depression, but of course the Bank of England have that under control :)
ReplyDelete-Jason Lee