Second, the cost of producing gas has not risen. All that has risen is the price, driven by fears of Russia, in the main. But by no means all the gas we use is Russian. There will be UK companies making a great deal of money from this increase in gas prices: the money does not all disappear into a bottomless pit. The government could take action to recover at least some of the excess profits that will be made to then subsidise the fuels bills of those needing help – as many will. But I very much doubt that will happen.
We’re in a shortage, so let’s tax supply to subsidise demand. Yeah, right……
Fourth, the good news from that is that inflation, excepting fuel prices, may well fall – although the chance that the Bank of England will allow for that is low, meaning that they will probably add to the woes in 2022 by increasing interest rates.
But if decreased demand will lower inflation – so it’s not just supply chain woes of reopening, isn’t merely transitory – then the correct reaction to the inflation we thought we were about to have would have been to raise interest rates.
But the P³ kept insisting that we shouldn’t to that because it was all just transitory.
Interest rate rises reduce inflation *by* reducing demand. So, if reduced demand reduces inflation then higher interest would have reduced inflation.