Tuesday, September 15, 2009

Inflation firmer

Inflation gestation

Inflation is firmer than thought. The BoE relies heavily on the output gap as a determinant of inflation, in that the lost capacity acts as a productivity buffer in the face of demand. I have my doubts about this methodology. Sure for a large company cutting capacity perhaps they can bring that capacity back online. But there are many SMEs in the UK, a number of which have closed. Although an SME can close overnight, to start over to build even a 20+ worker company can take many many years i.e. they are not part of an output gap they are -lost- capacity. Quite aside from sounding suspiciously like unemployment being used as an inflationary control measure. Unless they dovetail with public sector cuts, in which case I am all for it.

Posted by stillthinking @ 12:23 PM (615 views)
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One thought on “Inflation firmer

  • Notbuyingoneyet says:

    I work for a very large manufacturing Company. We have had our redundancies, but now we have an upturn, we cannot increase our capacity easily. We have already closed one factory and our suppliers have cut back on staff/production capacity too. We may experience a ramp up of our order book, but cannot supply our customers due to the supply chain links being broken. For example we require 150 tons of steel of a particular type, to make our product housings, now what happened to Corus…that’ s the problem, even for the big players.

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