Friday, January 21, 2011


What is behind rising inflation?

AS THE world economy has recovered, fast-growing emerging economies such as China and India have struggled to keep a lid on consumer prices, while stagnating developed countries have faced low inflation rates. Recently, however, rich-country inflation has also started creeping up: in December Britain’s consumer-price index hit 3.7%, while euro-zone inflation also rose above the ECB's target. Much of the blame has been put on the increase in commodity prices. But the impact on consumers differs widely between countries. A larger share of income is spent on food in poorer countries such as China (33%) and India (46%), so the rise in global food prices is the main driver of inflation there. By contrast, pricier energy is a bigger factor in the rich world, although it forms a relatively small component of consumer spending.

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