Inflation Yet Again

 It might start to seem like a bit of a worn record but my previous blog posts about inflation seem to be being backed up once more. 

Boris Johnson has claimed the current problems are all part of his plan to move to a high wage, high skill economy. The problem with this is that with wages going up and an insufficient supply of labour constrained along with  there is a very high likelihood of price rises feeding into inflation. 

If the number of workers is lower than the number of employees that the country needs then increasing wages will just move the problem from one sector to another such as refuse lorry drivers moving to drive supermarket HGVs. Sectors with lower wages such as public sector will then lose out or have to ramp up wages to compete causing a spiral of wage growth but no extra people.

https://www.bbc.co.uk/news/business-58811271

As a small example if you have 11 jobs in your economy and only 10 workers then as an employer you can increase wages which will allow you to hire a new employee but that will come at the expense of another company losing a member of staff. If they increase their wages to tempt another employee to join it will cause the same problem elsewhere. Ultimately if there are insufficient staff then supply and demand will drive wages up unless each employee can do more work - known as increased productivity.

How inflation plays out over the next six to 12 months will really show what is going on and whether the anecdotal evidence I can see on a day to day basis was more accurate than the Bank of England forecasts.