Friday 25th July 2008
by Bob Bardsley
Know Your Money Editor
Many of the headlines in the UK at the moment are reporting the rate of inflation having reached 3.8 per cent on the consumer price index.
This is almost twice the official target figure of two per cent which the Bank of England's monetary policy committee takes into account when adjusting interest rates.
But overseas the picture is even worse, as the Associated Press (AP) notes, with inflation across the eurozone standing at four per cent.
Some 15 countries are within the zone, including Germany, which saw exports fall by 3.2 per cent in May, while French truckers are protesting over fuel prices - although that may come as no surprise.
The US, however, is facing even greater inflation, with the AP reporting a year-on-year rise of five per cent in the cost of a theoretical shopping basket in the country.
Among the items taken into account when calculating the US rate of inflation are a quart of milk and an aeroplane ticket, the news provider points out.
What this means now
In the US, a dual effect is currently hitting consumers from both sides, according to the AP.
As well as the rate of inflation taking the cost of goods higher at a rate not seen since the aftermath of Hurricane Katrina, wages are dropping.
Weekly pay packets were 0.9 per cent smaller over the course of June - the third month in a row that they reduced in value, the newswire adds.
David Blanchflower, one of the economists who serves on the rate-setting monetary policy committee at the Bank of England, is based in the US, the AP observes.
He recently told the Guardian that the UK economy could be set for even more turbulent times than those taking place across the Atlantic.
Mr Blanchflower explained that this is due to the Bank's reluctance to cut interest rates in order to revive the economy.
"The US has had a big stimulus but the UK has had none," the economist told the publication.
"So the same things that have been happening in the US will happen in the UK but they could well be worse."
What this could mean soon
If Mr Blanchflower's assertions do turn out to be true, forecasts of the coming months in the US are likely to paint a slightly rosier picture than that to come in the UK.
But the National Association for Business Economics is predicting stagnation across the US with little or no economic growth during the remainder of 2008.
Some 45 per cent of economists surveyed by the organisation anticipate growth of one per cent or less through to the end of the year.
Just one per cent of respondents placed growth in excess of three per cent - although a spokesperson notes that the situation is not altogether bleak.
Ken Simonson, chief economist for the Associated General Contractors of America, says: "Most forecasters are suggesting the outlook will be sluggish, but not desperate.
"I'm afraid we're stuck on the ground floor of growth."
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