17 August 2022
2 mins
Latest inflation data showed UK inflation was 0.3% higher than the US, 0.8% higher than the euro zone and almost 7% higher than Japan. Inflation is expected to reach double figures by autumn once the energy price cap is reviewed.
High inflation is by no means localised to the UK. Prices around the world started rising as a result of Covid-induced supply chain issues. A tight labour market in the US, where the number of vacancies is over double the number of unemployed, has led to strong wage growth, pushing up labour costs. In addition, the war in Ukraine has led to elevated commodity prices. This has been felt especially acutely in Europe where gas prices are nearly 10x higher than the average over the previous decade.
The US and Europe however are each experiencing one or two of these main causes. For example, the US has a very tight labour market but is not as reliant on gas imports. Conversely, Europe has been hugely impacted by high gas prices but has a cooler labour market. Unfortunately, the UK has both of these predicaments to contend with. Other drivers such as a weaker pound have also contributed.
Will the UK’s high inflation persist or are there signs of relief?
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