During previous [financial] shocks in the euro area, firms had tended to absorb rising costs in profit margins, as slower growth made consumers less willing to tolerate price hikes. But the special conditions we experienced last year turned this regularity on its head.
The sheer scale of input cost growth made it harder for consumers to judge whether price hikes were caused by higher costs or higher profits, fuelling a faster and stronger pass-through.
At the same time, pent-up demand in reopening sectors, excess savings, expansionary [government] policies and supply restrictions brought on by bottlenecks gave firms more scope to test consumer demand with higher prices.
OK. Note, “in the euro area”.
But this morning the government minister on the news round is claiming that inflation is caused by public sector wage increases, monetary policy (they are now blaming QE) and supply chain disruption. It’s time they stopped the nonsense and started talking about why we still have inflation, and those are not relevant. To claim they are is just misinformation in pursuit of class warfare.
We’re not in the euro area.