Prices in UK have been rising ever since the Cost-of-living crisis has come to forefront. This has been the worst inflation rate in nearly forty- years. Higher energy and food bills, partly driven by the war Ukraine, are pushing the cost of living up.

UK inflation, the rate at which prices are rising, have jumped to 9% in 12 months to April, up from 7% in March. People across the country has been devasted due to skyrocketing of essential goods prices. Worker classes have been badly hit by this with their pay cuts. Also they have been pushed to farther end of the society with more crunch in their finances. Here are some of the alternative ways in which the government can act to curb inflation. There are many methods used to control inflation. Some of the ways have been effective and can inflict less collateral damage than others.

Price Controls

price control

Price control are price caps or floors mandated by the government and applied to specific goods. Wage controls can be implemented in tandem with price controls to suppress wage push inflation.

Contractionary Monetary Policy

contractionary Monetary policy

Contractionary monetary policy is a more popular method of controlling inflation. The goal of a contractionary policy is to reduce the money supply within an economy by increasing interest rates. This helps slow economic growth by making credit more expensive. Which reduces consumer and business spending.

Open Market Operations

Open market operationa

Reverse repurchase agreements are an example of Open market operations. Which refers to the buying and selling of Treasury securities. OMO are a tool with which the Federal Reserve increases or decreases the money supply and adjusts interest rates.

Discount Rate

discount rate

The Discount rate is the interest rate charged on loans made by the Federal Reserve to commercial banks and other financial institutions. The lending facility through which these short-term loans are made is called discount window. Through the discount window’s primary purpose is to fulfill bank’s short-term liquidity system. The discount rate is yet another interest rat that needs to be raised to temper inflation.

The Bottom Line

Bottom Line

Government have relatively few ways to stop inflation. They can put a cap on prices also pursuing contractionary monetary policy is the preferred method of controlling inflation.