The Telegraph: UK will have highest inflation in G7 for two years, says Moody’s

Article published: 1 September, 2023

IB Economics syllabus: Macroeconomics (inflation, interest rates, income distribution, labor markets)

UK’s Inflation Outlook and its Macroeconomic Implications

Moody’s has warned that the UK could have the highest inflation rate among the G7 nations until at least the end of 2024. Analysts project that consumer prices in the UK will rise by an additional 3.9% in the upcoming year. This rate is comparable to Italy’s and surpasses other major economies such as Germany, the US, and France. The UK’s inflation rate currently stands at 6.8%, and experts predict it will average 7.8% throughout 2023. Moody’s believes that the decline in inflation in both developed and emerging economies results from the use of savings accumulated during the pandemic. However, food and energy prices have risen since June, and tight labor markets are pushing up wages, which might change this trajectory.

IB Economics Internal Assessment (IA) Commentary

This article offers a detailed framework for an IB economics commentary. Here, you can delve into the causes and effects of inflation, examining why the UK’s inflation rate is higher than its G7 counterparts. It’s essential to consider the role of interest rates in managing inflation, especially given the significant rate hikes since the 1980s. Morover,  the article also highlights the labor markets and the influence of rising wages, allowing for a discussion on the link between inflation and wages. For diagrams, you can use the Phillips Curve, which shows the relationship between inflation and unemployment, and the AD/AS model to illustrate the inflationary effects on an economy.

Source of image: ANDY RAIN/EPA-EFE/Shutterstock

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