Opinion | The pound’s fall and the dollar’s rise illustrate Britain and Europe’s inflation problem

This was when I learned to like tofu, because I couldn’t afford meat. (Though I did break down and buy a solitary lamb chop at Easter.) I learned to like walking, because I couldn’t afford public transportation. Eventually, I wore holes in the soles of my one pair of work shoes, and since I couldn’t afford new ones, I lined them with newspaper, like a character in a Victorian novel.

I tell you this so that you will understand my amazement in finding that Britain is suddenly amazingly cheap. The pound costs less than $1.20, rather than almost $2. Meals and hotels are reasonable, and the treats I picked up at Fortnum & Mason seemed almost a bargain. Britain is on sale, which is very nice for us Americans, but not very nice for Brits. And I’m afraid that’s at least partly our fault.

For all our many problems, the United States is currently in an enviable position among rich nations. Yes, inflation is too high. Yes, companies are announcing layoffs as the Federal Reserve’s interest-rate increases cut into consumer confidence and corporate bottom lines. Yes, our politics are poisonous. And no, I do not think we will be able to avoid at least a shallow recession over the next year or so.

But for all that, recovery from the economic effects of the pandemic in the United States came early. That meant we were hit by inflation sooner than other countries, as consumers celebrated their liberation by trying to buy more goods and services than supply chains could deliver. By the time other countries recovered, they were competing with exuberant Americans for deliveries, and high inflation became a global phenomenon.

Inflationary pressure abated somewhat as the Fed raised rates, and consumer demand slackened. But this opened up another channel through which the United States could export inflation: the one I am currently witnessing, a strong dollar.

Higher interest rates made U.S. assets more attractive to global capital. To buy these assets, people and companies first had to buy dollars with whatever other currencies they had. This effect has been exacerbated by the “flight to quality” that always takes place in times of uncertainty.

Inflation in the United States — now 7.7 percent year over year — is relatively quiet compared with what has happened in many European countries that were exposed to the soaring cost of gas when Russia cut off supplies. Inflation is 11.1 percent in Britain, 14.3 percent in the Netherlands and 11.6 percent in Germany, which is known for its constitutional inflation hawkery. The war in Ukraine that resulted in the gas crisis is also contributing to a lot of uncertainty. By comparison, the United States appears serene and prosperous — comparatively attractive for investors seeking a haven for their money.

The dollar is not as strong as it was under Ronald Reagan, when major economies came together in the Plaza Accord to bring its value down, but it is stronger than it has been in years. And while normally a weak currency helps spur exports (“The strong U.S. dollar has Americans flocking to Europe,” says Forbes), that won’t help as much as it could, because tighter Fed policy is pinching consumer demand.

Which is why, although British goods and services are cheap, I didn’t buy many. I wasn’t as austere as when I lived in London — for one thing, I was staying in a hotel rather than a flat, so I had to eat out. But the most expensive thing I bought was a cheap suitcase to replace one that proved unequal to the job of holding my stuff. Other than that, I mostly enjoyed — for free — interesting conversations with smart people, and some of London’s gorgeous architecture. It may be gratifying to find that as an American, I am relatively better off today. But the fact remains that we’re all in a pretty perilous condition.