When I was at school, we were taught that inflation was the result of ‘too much money chasing too few goods’. Well I don’t know of anyone that has too much money. Most of us are earning even less than we were a decade ago in real terms. So how the hell is putting interest rates up supposed to help? It not only seems like a terrible idea to hike up the cost of mortgages during a cost of living crisis, but I can’t even see that it will help solve the inflation problem.
It’s a pretty blunt tool from a GCSE economics textbook hike interest rates means less borrowing, therefore less demand and / or more money spent on interest and thus less spending power, deflating demand. it won’t work.
You're quite correct about too much money etc... But there are reasons why there are too few goods and there are other issues about the distribution of aggregate income in the economy. Interest rates are designed to suppress that aggregate demand but they don't address any societal issues related to low pay etc. They're simply an economic tool for the economy as a whole.
Inflation is being driven by energy costs and food prices, i.e. basic necessities. Interest rates will have to get pretty high before people stop eating and/or heating their homes - although this is increasingly common. Raising interest rates won’t work if there is inelastic demand for the things causing the inflation!
Yep. Its supply side stuff caused by lots of issues like brexit and war and lack of productivity. All these lefty communist disruptive unions trying to get decent pay after 13 years of Tory rule and continued under-inflation payments are to blame though aren't they?
