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ts with last month, rising food prices meant that food and nonalcoholic beverages made the largest upward contribution to the change in the annual inflation

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ts with last month, rising food prices meant that food and nonalcoholic beverages made the largest upward contribution to the change in the annual inflation rate in September 2022, while falling pump prices for motor fuels made a large offsetting downward contribution. The relatively high contribution to the rate since tpril 2022 came mainly from electricity, gas and other fuels. This reflects price rises for gas and electricity following the increase in the Office of Gas and Electricity Markets (0fgem] cap on energy prices on 1 rpril 2022 and follows an earlier rise in the price cap on 1 October 2021. Electricity prices rose by 54.0% and gas prices by 95.7% in the 12 months to September 2022, leading to a 1.85 percentage point contribution to the annual inflation rate from electricity, gas and other fuels in total. Question 3: The UK economy (Lecture 15; Workshop 10; Text, Chs. 10 & 11) CPI ANNUAL RATE 00: ALL ITEMS 2015=100 % 12.5 10 7.5 5 2.5 O -2.5 1989 JAN 1997 SEP 2006 MAY 2015 JAN 2022 SEP - CPI ANNUAL RATE 00: ALL ITEMS 2015-100 Source: Source: ONS, October 2022 Read the following extract and answer subsequent questions. The Consumer Prices Index (CPI) rose by 10.1% in the 12 months to September 2022, up from 9.9% in August. The CPI monthly rate was 0.5% in September 2022, compared with 0.3% in September 2021. In September 2022, the CPI annual inflation rate returned to the July level, which was the highest annual CPI inflation rate in the National Statistic series, which began in January 1997. The largest contribution to the annual rate in September is from housing and household services. The second largest contribution came from food and non-alcoholic beverages, which has overtaken that from transport.The energy price cap has been replaced by the IGovernment's Energy Price Guarantee [EPG] as of 1 October 2022. The EPG will be in place until pril 2023. It is expected to fix the unit cost of electricity and gas. According to the Bank of England, higher energy prices is the main reason why inflation is currently so high. Russia's invasion of Ukraine led to big increases in the price of gas and the war in Ukraine has also increased food prices. There is also pressure on prices from developments in the UK. Businesses are charging more for their goods and services because of the higher costs they face. There are more job vacancies than there are people to fill them, as fewer people are seeking work following the pandemic. That means that employers are having to offer higher wages to attract job applicants. The Bank of England has been raising Bank Rate since December 2021. On 22 September, the Bank rate increased to 2.25%, making the borrowing more expensive, encouraging saving, and reducing how much people spend overall. This helps to push inflation down. But higher interest rates don't work straight away. They take time to take full effect. So, when we use them, we always look at what will happen in the economy over the next few years, not just what's going on now. Source: 0N5, October 2022 Questions: 3} With reference to the extract above and the materials you covered in this module, what are sources of inflation that effect businesses in the UK? {10 marks} b] Draw relevant AD/S diagrams to demonstrate the types of inflation you referred in question (a} above. {15 marks] c] Discuss how the policy makers can help to reduce the rate of inflation in the UK. Do you think that the government can bring down inflation to its target rate of 2% and if so, how? [25 marks]

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