InFlaTion

United Kingdom inflation rose to 2.7% in October, 2012, from 2.2% in the previous month.

The Office for National Statistic (ONS) said that the increase was mainly due to higher university tuition fees and food prices. In particular, education cost rose by 19.1% between September and October after the government raised the maximum annual tuition fees for new UK and EU students in England to £9,000. The people with the lower income – face the second highest inflation rate at 2.8%, due to increased prices for essentials such as food and water. Food prices are expected to rise further due the impact of a prolonged drought in the US which decimated crops, exacerbating the impact of long-term trends such as population growth and changing diets. In another hands, the latest figures confirm that people’s incomes are being squeezed even tighter, national Trade Union Centre claimed. Other than that, the British Chambers of Commerce (BBC) believed that, inflation could yet rise even higher.

Meaning of Inflation

Inflation is a rise in general level of prices. When inflation occurs, each dollar of income will buy fewer goods and services than before. Inflation reduces the “purchasing power” of money. But inflation does not mean that all prices are rising. Even during periods of rapid inflation, some prices may be relatively constant and others may even fall.

Cost-push Inflation

Inflation also may arise on the cost, side of economy. The theory of cost-push inflation explains rising prices in terms of factors that raise per-unit production cost at each level of spending. The cost of running or expenses of the university in United Kingdom is keep increasing, it caused the increase of cost of production, this is one of the factors caused the higher education fees. In another hand, the second highest inflation rate that the Britain facing is at 2.8%, due to increased prices for essentials food. Food inflation in UK caused by the rise in the prices of imported due the impact of a prolonged drought in the United States which decimated crops. This scenario will result in an increase in the cost of production; this can be called an imported inflation and also known as cost-push inflation. Other than that, increases in wages rates, increase in rental and interest costs also caused the rising costs of production. In 2012, the Retail Prices Index (RPI), an alternative measure of inflation which includes housing costs, also rose last month to 3.2%, from 2.6% in September.

How can help Britain??

(a) Central Bank should implement Tight Monetary Policy by increase the interest rate and      reduce the money supply.

(b) Contractionary Fiscal Policy deals with government expenditures and revenue. Increase tax,   and decrease government spending can reduce demand-pull inflation.

(c) Direct control known as direct government intervention in the price mechanism of the country.

Examples:

-          Control of trade union

-          Anti-hoarding campaign

-          Price tagging

reference:http://www.guardian.co.uk/business/2012/nov/13/inflation-rises-again-tuition-fees-food

                                                                                                                           

                                                                                                                                By Annie Lim