We’re in unfamiliar territory. You need to go back to 1982 before you find the UK inflation rate at current levels – it is now nearly double the long-term average since 1949.
Households have been the first to feel the strain, and with discretionary income in retreat, we might be fast-approaching the point at which businesses are no longer able to pass on cost increases to consumers. Statistics suggest we might be there already.
The rate of producer price inflation has hit its highest level since records began and is already outstripping factory gate prices. It’s significant that the gap between the two measures is widening. This could reflect a possible lag on the pricing front. But it could also signal that consumer demand has become more sensitive to inflationary effects. If this does, indeed, point to increased elasticity of demand across the board, any further increases in input prices are likely to eat into corporate earnings.