In March, UK inflation persisted at over 10%, mainly due to skyrocketing bread prices. Consumer prices increased by 10.1%, with food prices climbing by 19.2%—the highest increase in 45 years. Bread and cereals experienced a record-breaking 19.4% inflation rate. Poor harvests and a weak pound made imports, which account for nearly half of the UK’s food, more expensive. Core inflation remained at 6.2%.

Compared to the US and Europe, UK inflation has been more severe, exacerbated by energy shocks and labor shortages. The UK’s reliance on gas and its status as a net energy importer have driven up inflation across the board. Additionally, low unemployment and worker shortages have contributed to strong wage growth, although pay raises have not kept up with rising prices.

Inflation is expected to decrease through the rest of the year, as wholesale gas prices and supermarket price reductions take effect. However, core inflation may take longer to fall, possibly prompting the Bank of England to raise interest rates further.

THINK LIKE AN ECONOMIST!

Q1. Define the term inflation.

Q2. Using an appropriate diagram, explain why inflation in the UK is so high.

Q3. Evaluate the impact that soaring inflation has on different stakeholders in an economy.

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TheCuriousEconomist

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