The Daily Update: Misplaced Inflation Worries / UK Goes Green

The debate that has been raging over the last few months about the prospect of roaring inflation are misplaced due to there being ample slack in the economy according to a wide range of key metrics the Senior Economist at the Boston Fed Viacheslav Sheremirov believes. ‘Concerns about inflation rising persistently above the target are still premature, in my view’ he said, adding ‘Output is still significantly below its pre-pandemic level, labour markets have room to improve further, inflation readings are low, and both survey and market-based inflation expectations are relatively stable’.

Sheremirov did warn that ‘Inflationary pressures may become somewhat more persistent if domestic demand rises substantially in most consumption categories while global supply chains continue to experience significant disruptions—for instance, due to uneven access to vaccinations across the world’. However, whilst there has been movement in the five-year and five-year-forward break-even inflation rates, they are still at ‘at levels seen not so long ago and, at least then, inflation remained low and stable’.

Also, at lunchtime on Easter Bank Holiday Monday, the UK’s electricity system was the greenest it has ever been. Windy and sunny weather, added with a low demand for power, led to a spike in renewable sources of energy, with zero-carbon power sources making up nearly 80% of Britain's power. This achievement comes as it was announced that by September next year Britain will have just one coal power plant still in operation. Coal fired power plants have powered the UK’s electricity grid for almost 140 years, starting with the opening of the Holborn Viaduct power plant in 1882. As recently as 9 years ago coal-fired power still provided 40 per cent of all UK electricity demand.