Chart of the Week

NOT THE 1970s REDUX

The chart below helps to put the current UK inflation episode in context. It shows the average rate of retail price inflation (RPI) for every decade going back to the 1910s.

The RPI is a broad measure of UK goods and services costs. It includes housing-related costs, which tend to amplify the inflation reading compared to the widely-used consumer price index (CPI); RPI typically comes in at least 1% p.a. higher.

The low point for UK RPI came in the 1920s and 1930s as the Great Depression took hold. At the other end of the spectrum, the 1970s saw the RPI average a debilitating 13% p.a..

The horizontal red line shows that UK RPI has averaged 6.1%p.a. during the first half of the 2020s. This is well above the levels of the past 30 years, but well below the 1970s norm, especially if one factors in that much of the recent spike was the temporary surge above 10% in late 2022/early 2023.

The UK economy is clearly facing a number of challenges, but comparisons to the 1970s are misplaced. Whilst UK inflation is trending higher again, a return to sustained double-digit RPI prints is unlikely given the deflationary impact of the prevailing debt burden.