Ms Cooper says:
If exporters price to market - that is, accept the prices prevailing in their target market - a weaker pound will lead not to higher prices but rather to a squeeze upon exporters‘ profit margins.
A similar thing can happen if buyers have monopsony power. Tesco (say) might have sufficient power over some of its foreign suppliers to resist any price rise.
But even if this isn’t the case, inflation only rises relative to what would otherwise happen. It doesn‘t necessarily rise relative to its past level.
This point matters if sterling falls because of the weakness of the economy. In such an event, it’s quite likely that weak demand will have more effect in depressing inflation than the fall in sterling will have in raising inflation.
All this is a way of explaining the chart. It shows that big changes in sterling have little impact upon inflation (I’ve put both on the same axis to highlight this fact). For example, sterling’s fall when we left the ERM did not lead to higher inflation. Nor did its rise in 1997-98 lead to lower inflation.
So, Ms Cooper is quite right to be relaxed about the weakness of the pound (for now at any rate), and Iain is wrong to suggest it will lead to higher inflation.
This continues a pattern for Tory commentators’ attacks upon Labour’s economic policies to be just plain stupid.
Which is odd, because there is much that has been genuinely wrong about these policies.