Inflation: 75 years of ups and downs

What can decades of inflation data tell us about the current economic situation? ICAEW’s interactive graphic sheds light on the likely outlook.

The UK economy has been hit from all sides, from post-pandemic supply-chain issues and staff shortages to rising energy prices as a result of the Russia-Ukraine war and barriers to trade following Brexit. All have fed into the current 40-year high level of inflation – which is likely leading to a recession.

ICAEW Insights has opened the history book on inflation, all the way back to the mid-20th century, and assessed not only how it has progressed since 1950, but also where inflation is heading in the next few years. This has been presented in the form of an interactive line graph – Inflation: 75 years of ups and downs.

“The story of inflation is one of economic ups and downs, sometimes accompanying economic growth as in the post-war period, and sometimes in the context of recession and weak economic growth as in the 1970s and the early 1990s,” says Martin Wheatcroft FCA, external adviser on public finances to ICAEW.

Based on data from the Office for National Statistics (ONS), the inflation graphic gives a month-by-month breakdown for the period between 1950 and 2022. Meanwhile, projection data forecasting up to 2025 was sourced from the Bank of England.

Wheatcroft says the speed at which inflation has returned after 30 years of being mostly under control has taken everyone by surprise. A resumption in demand as we emerge from the pandemic and constraints in the supply of energy, manufactured goods and agricultural products have combined to rapidly force up prices around the world, not helped in the UK by a weaker currency.

“In theory, this should be a temporary shock as businesses respond to price signals by increasing supplies and the annual rate sees price rises from a year ago drop out of the calculation,” Wheatcroft adds.

UK inflation “will surge again in October”

Suren Thiru, ICAEW’s newly appointed Director of Economies, believes that UK inflation may drop back below 9% over the summer as the year-on-year comparisons become more favourable, “but UK inflation will surge again in October as the expected energy price cap rise lifts inflation well above 11%.

“The impact of Russia’s invasion of Ukraine and UK-specific supply-side constraints could mean that the journey back to the Bank of England’s 2% target may take longer than currently predicted,” Thiru says.

Wheatcroft also warns that the Russian invasion of Ukraine and an uneven post-pandemic opening up around the world are just two of the many and varied factors that make bringing inflation under control a challenge for policymakers, against a backdrop of concerns about the risk of a wage-price spiral.

Rebuilding supply chains and workforces will reduce inflation

Thiru believes that increasing interest rates will do little to address the global headwinds and supply constraints driving this inflationary surge. It also raises the risk of recession by damaging confidence and intensifying the financial squeeze on businesses and consumers. He suggests that policy needs to be loosened further by introducing policies that encourage economic growth to support financially stretched households and give firms the financial headroom to keep a lid on prices.

Thiru says changes to government policy to address some of the supply side constraints could include ways designed to bring people back into the UK labour market through flexible working practices and rapid retraining opportunities. He says there is also an argument to issue temporary and seasonal visas and review the Shortage Occupation List where there is clear evidence of a national shortage of skills and labour.

Using the interactive inflation graphic

You will see a line graph spanning 1950-2025. Once loaded, the line will rise and fall according to the inflation percentages from each year dotted along the x axis. The timeline highlights key events with a knock-on effect on inflation, for example, the 1973 oil crisis, the 2008 global financial crisis and the fall in sterling following the Brexit vote in 2016. To replay the line graph, just refresh the page.

By clicking on different parts of the line graph, you will see the annual CPI-inflation rate for each year. The graph shows the Bank of England’s target range of inflation between 1% and 3%, highlighted in light blue. Data past June 2022 is highlighted in grey to show these are projected statistics and subject to change.