Inflation

What is inflation?

 

Inflation is the rate at which prices for goods and services in a country increases. Alternatively, if the value of a currency decreases this can lead to a country experiencing inflation. In the UK, it is primarily measured using the Consumer Price Index (CPI) and the Retail Price Index (RPI), and is represented as an annual percentage change.

 

Data on inflation is crucial for Central banks, who have a huge influence on economic policy. Central banks use this information to determine how to adjust a country’s interest rates, increasing them to try and control an increase in goods prices.

 

Inflation can be anticipated and controlled, or it can come as a shock and have much more severe consequences. When demand for a good speeds up faster than supply can match, prices are pushed up, this is demand-pull Inflation. Another cause of inflation is an increase in production costs, cost-push Inflation. Lastly, there is monetary inflation which occurs when there is too much money being distributed into the economy, its value is then depleted and prices must go up.

 

Inflation News from LGIM

 

As one of the UK’s leading investment managers, LGIM offers knowledge and experience that can bring real benefit to investors looking to understand the economic factors and policies which affect inflation.

 

Find the latest research on everything from hyperinflation to stagflation with MacroMatters. We aim to provide investors with the insights necessary to stay informed and ahead.

 

Our Asset Allocation team includes dedicated and accomplished US, European and Global economists, whose focus is to assess the macroeconomic environment in the developed world. This includes researching government policy, emerging political trends, as well as the outlook for economic growth and inflation. Our economists then work with our team of strategists and portfolio managers to translate their views into what this means at a portfolio level.

Economics

Don't shock me now

I'm not sure exactly why Queen's "Don't stop me now" has been stuck in my head...something to do with football and wishing not to get knocked out maybe...we were having such a good time! Anyway, as I say in this Sky News interview on the Ian King Show, only a big shock would stop the Bank of England from hiking in August. I also discuss the merits of the new monthly GDP data.

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Economics

Without ARMs, does the US economy have legs?

The US might be less sensitive to interest rate increases than commonly thought.

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Economics

Where are the inflation hawks?

US core inflation is on the verge of returning to target, but there are widespread expectations that it will stabilise there over the next few years. How confident should investors be in this outlook?

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Portfolio Thinking

The linker tail

The UK inflation-linked government bond ('linker') market is dominated by vast UK defined benefit pension schemes. Derisking by schemes tends to increase demand for linkers as equity prices rise, pushing up their prices. For multi-asset investors seeking diversification, that could make them less attractive to buy.

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Economics

Carney’s contracting conundrum

In November, the Bank of England decided not to go beyond reversing the 'insurance' rate cut it made following the EU referendum. Since then, however, the UK labour market has improved and inflation has remained stubbornly high. This presents the governor with a conundrum. Should he raise rates again soon or remain cautious and wait for the fog of uncertainty regarding the final Brexit deal to lift?

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Economics

Trillion dollar binge

'Goldilocks' is giving way to stronger US growth and potential inflation concerns, with Congress fanning the overheating economy with even more fiscal stimulus. This is likely to prove a textbook example of a political business cycle.

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Economics

Chinese inflation: Going hog-wild?

On Friday, we are likely to receive confirmation that Chinese inflation jumped to almost 3% in February, up from 1.5% previously. Higher Chinese inflation conjures up scary scenarios. It could force the People's Bank of China into hiking interest rates when the economy is slowing and saddled with massive debt. It could also add to building inflationary pressures in the US and UK, hastening interest hikes and weighing on equity and bond prices. But relax! The jump in Chinese inflation shouldn’t trigger any of this.

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