The UK in Flux: An Analysis of Post-Covid Inflation
Open Access
- Author:
- Datta, Aditya
- Area of Honors:
- Economics
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Ruilin Zhou, Thesis Supervisor
Nima Haghpanah, Thesis Honors Advisor
Bee Yan Roberts, Faculty Reader - Keywords:
- United Kingdom
Brexit
Covid
Inflation
Monetary policy - Abstract:
- In October 2022, inflation in the United Kingdom reached 11.1%, marking the highest level in 41 years. While global inflation shocks, particularly affecting food and energy prices, as well as shortages, drove the rise in prices, factors unique to the UK exacerbated their impacts. There is a plethora of literature, news, and data that describe specific elements of inflation in detail, but not the full picture. This thesis will address that gap by contributing a clear, concise narrative that identifies and explains the factors driving UK inflation since the onset of the Covid-19 pandemic. First, a roadmap for the analysis is created by utilizing two different decompositions of inflation for reference. These decompositions are analyzed in detail by breaking inflation down to its core, energy, and food components. The various drivers of core inflation are revealed through an examination of wage inflation, import prices, and supply shortages. Energy inflation is analyzed using the UK price cap mechanism and natural gas dependency, while food inflation is found to be driven by supply shocks from the Russo-Ukraine War and worsened by non-tariff barriers from Brexit. Finally, post-Covid inflation is compared to that of the 1970s to evaluate the importance that effective monetary policy had in lowering inflation after significant price shocks.