For a generation that has not experienced inflation, the price rally of past months is a painful novelty.
Because most of us have no recollection of a similar time, we assumed it would be over soon. However, this has not been the case.
Prices have been rising steadily since the end of the pandemic, reaching heights not seen in decades and with no signs of abating.
The worst core CPI reading in the UK since 1992 confirmed the fears of policymakers: that inflation has become entrenched.
Initially, inflation was a result of supply chain dysfunctions wrought by the pandemic and deemed 'transitory'. However, the war in Ukraine thrust food and energy prices much higher.
This propelled consumers and workers into action, catalysing the transformation of inflation from supply driven to a much more dangerous variant: demand driven. The difference is stark.
Supply vs demand
Supply chain disruptions are a problem that can be resolved by concentrated action from supply chain managers. If a good does not reach a desired market via route A, another route B is designed and implemented.
Demand-driven inflation, however, is essentially a vicious circle.
As prices rise, employees go to their managers asking for more money. They are likely to get it because the UK labour market is extremely tight.
Corporate managers have to make sure that their margins are maintained, especially if they have to answer to shareholders. So, they increase the prices of their goods.
Because everyone is affected, this is not confined to companies with pricing power, but it happens across industries. Seeing the rise in prices, consumers, who are also workers, go to their managers asking for another rise.
Meanwhile, mortgage rates go up. Because housing availability in certain areas of the country is limited, homeowners have the option to rent out, either the whole property or part of it.
In some cases, renting out a room may be enough to pay for the whole mortgage. Renters, in turn, ask for a raise to cope with increasing housing costs.
Inflation is persistent because it has become a game of pass the parcel. From employers to employees back to employers, from homeowners to renters to employers and back to the market, everyone is trying to pass on the short-term pain, accelerating the inflation cycle.
Taking a share
So how does the inflation cycle break? A known weakness of capitalism is that everyone is incentivised to look after themselves. This can be damaging in times of crisis. So the only palatable alternative is for the state to step up.
On April 25 the chief economist of the Bank of England, Huw Pill, broke form and made an exasperated plea: "Somehow in the UK, someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices, whether higher wages or passing the energy costs through on to customers.
