Home > Fiscal Policy > UK Adopts Price-Level Target, Demand Soars

UK Adopts Price-Level Target, Demand Soars

… but only for postage stamps.

The UK government has engaged in a series of unconventional demand-side polices aimed at increasing output without requiring deficit spending:

  1. A scheduled 13% rise in the cost of postage stamps produced exactly the effect you’d expect from adopting a price level target: demand has soared ahead of the price rise.
  2. Putting Francis Maude on the radio and convincing people there will be a negative supply shock (from a tanker driver strike) any day now produced a surge in demand for fuel.
  3. Increasing the VAT on pasties has produced a production boom in Cornish pasties as people stock their freezers ahead of the rate change.

Alright, I’m not too sure about the Cornish pasty data, the fuel effect is probably all consumption moved between periods, the oil is mostly imported anyway, and the government happens to be the monopoly supplier of postage stamps.  Plus the effect on aggregate demand from any of these things is probably limited.

But the retail numbers showed an impressive 5.7% rise on nominal retail spending in the yoy comparison for the month of March, and 4.9% ex fuel on the same measure, which is a good number.   (It is also quite possible the ONS have screwed up the seasonable adjustment due to the timing of Easter.  Who knows.)

Simplest fiscal solution for deficient demand for newly produced goods and services?  Whip people up into a frenzy of panic buying.

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Categories: Fiscal Policy
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