International Economics: IB Economics

There's not much theory here, apart, perhaps from some reflection on whether higher benefit payments or public sector pay deals might stoke a wage-price spiral, both of which strike me as slightly peculiar arguments if you're prepared to allow private sector and executive pay to keep pace (or exceed) inflation.

However, you might reflect on what the government can do to control inflation as the MPC meets this week, and many see another interest rate rise as inevitable. Of course, David Blanchflower has been on the Today programme this morning advocating a rate cut - but he's known to be a contrarian.

It's not just in the UK where there's debate about the appropriateness of the current direction of monetary policy, the same is true of the US. Robert Reich writes in the Guardian that the Federal Reserve are on the point of hiking interest rates in response to rising inflation, because of worries about the possibility of a wage-price spiral.

He suggests that policymakers will argue that a labour shortage is driving up wages, but he thinks that this isn't the case and that the distributional effects of a rate rise will adversely affect the lowest paid. 

Everyone's 'favourite Finance Minister, Yanis Varoufakis, writes in the Guardian arguing that central banks have a tough task ahead, in controlling inflation, especially because the costs of inflation fall disproportionately on the poor. 

However, he looks into why they are contemplating interest rate rises at a time when the almost all inflationary pressure is cost-push, and then weighs up how this imperative might be balanced against the need to encourage green investment. As with much in economics, it's all about trade-offs. 

Inflation's up in the Eurozone too - reaching 4.9% last month - the highest figure since the creation of the Euro and well above the 2% target. 

Much like the UK, the bulk of this inflationary pressure is cost-push, and some worry that it's already being reflected in higher wage claims which may stoke a wage-price spiral. The flip side of this is that the uncertainty associated with the Omicron variant means that policymakers are wary of acting decisively at this stage.