Readers Question: However I was intrigued by something I read on the internet regarding Conservative plans to include housing costs in the Bank of England’s inflation target. Mortgage interest payments are included in the RPI measure of inflation. However, the official measure of inflation is currently the CPI. The CPI excludes mortgage interest payments. It …
Readers Question: I have a question which confused me for a long time. Recently, Zimbabwe’s central bank decided to delete 12 zeros of their currency to deal with the Hyperinflation problem. I just have an intuition that this action doesn’t work as the purchasing power of the currency remains unchanged. Can you tell me the …
Readers Question: Why is it that the value of the exchange rate falls when there is higher inflation? How inflation affects the exchange rate A higher inflation rate in the UK compared to other countries will tend to reduce the value of the Pound Sterling because: High inflation in the UK means that UK goods …
Readers Question: Does low inflation always mean low-interest rates? Generally low inflation will lead to low-interest rates. Although in practice there may be some divergence. The UK has an inflation target of CPI = 2%. Therefore, interest rates are used to achieve this target. If inflation falls to below 2% the MPC will cut rates …
Readers Question: What is the relationship/theory between the OCR (Official Cash Rate) and Inflation? The Official Cash Rate is the interest rate the New Zealand Reserve Bank use to control inflation. It is very similar to the base rate used by the MPC, Bank of England. Graph Interest Rates New Zealand Because New Zealand commercial …
2) what is repo and reverse repo rate and its effect on inflation The repo rate is the difference between the purchase price and reselling price of a security, expressed as a percentage. If commercial banks are short of money, they enter into an agreement with the Bank of England to sell their Treasury bills …
It’s not been a good week for the UK economy with the Bank of England downgrading economic growth and upgrading inflation forecasts. We’re heading for stagflation, the worst of both worlds. If you wanted more bad news, the Bank of England warned that productivity growth may actually be even worse than the pretty dismal statistics …
This is a graph showing US inflation in the post-war period. In a nutshell, US inflation has been fairly low and stable in the post-war period. The exception being in the 1970s and early 1980s when inflation became embedded. After the Second World War there was lingering inflation for a few reasons. Firstly, the war …