According to official output figures produced by the government for the first half of 2011, the UK economy is barely growing. Gloomy stories concerning business closures, job losses and falling profits are commonplace. At the same time, inflation has been accelerating, while wages for all but the super-rich have been flat.
Inflation does not just reduce household disposable incomes, it also distorts economic and financial statistics too. For example, in May 2011 Marks & Spencer claimed that its total food sales were up 4.1% on last year, but how much of this increase was down to inflation? Sales figures are supposed to be adjusted for the effects of inflation — just like GDP figures — so businesses are facing stagflation: the dreaded combination of inflation and stagnant output. What are the effects and how can businesses cope?
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