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Is current inflation really so bad?

Until this year, UK inflation had largely dropped off the list of financial things to worry about. For most of the past seven years the consumer price index (CPI) used as the headline measure for inflation was below the Bank of England’s 2 per cent target introduced in 2003, and concerns focused more on the spectre of deflation than on any risk of rapidly rising prices. Even looking back almost three decades, to 1992, inflation has spiked above 4 per cent only twice, in 2008 and 2011.

So why, with the latest (September 2021) data from the Office for National Statistics showing CPI at just 2.9 per cent, down from 3.0 per cent in August, is there such a kerfuffle about inflation? And what comparisons can we draw with the inflationary crises of history?

The Covid pandemic has caused huge disruption to growth for economies worldwide; the UK’s recovery – already hampered by supply bottlenecks and increasing energy prices – has been made more difficult by widespread foreign labour shortages as a result of Brexit.

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