The consequences of the pandemic for inflation – The Property Chronicle
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The consequences of the pandemic for inflation

The Economist

Inflation came in much stronger than economists anticipated across the major western economies in July, highlighting that the effects of the pandemic are not purely deflationary. In the UK, CPI inflation jumped up from +0.6% in June to +1.0% in July, whereas the consensus was for it to hold steady. Some of the increase was due to recovering oil and fuel prices, which was expected. The surprise was that despite the economy still being in the depths of the most severe recession on record, core inflation also rose. This was partly due to an absence of sales of summer clothes ranges that usually cause clothing prices to drop in July.

Now, the sales might merely have been delayed until August. But there is also a broader explanation for the rise in inflation, namely that the hit to supply from the pandemic combined with shifting spending patterns has pushed up inflation in some areas. Indeed, while economic activity is still some way below normal in aggregate, retail sales have already recovered and were 3% higher than their pre-virus level in July. This shift in demand away from services consumption towards the purchase of goods may explain why core goods inflation has spiked not just in the UK, but also in the US and the Euro-zone. 

Chart 1: Core Goods Inflation (%)

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