Graph and commentary courtesy of Chris Giles.
There is a rule of thumb that says you want nominal gross domestic product to grow by around 5 per cent a year. It is a pretty good guide, because it roughly accounts for the sum of Britain’s long-run productivity growth and a stable inflation rate close to the Bank of England’s 2 per cent CPI target.. Strip out the VAT rise and underlying nominal GDP (at basic prices) grew by 1.9 per cent – split into 1.4 per cent inflation and 0.5 per cent growth. Worrying about inflation in this climate is crackers…
You will notice that declines and slowdowns in NGDP growth are associated with bad things, and that steady 5% growth is associated with good things. This graph is a reason Hopi is wrong to see a fight with inflation looming, deflation remains our enemy.
Two questions, where will inflation come from with nominal growth so weak and were will real growth come from with nominal growth so weak?