A Short Post About Inflation

by Quinn

I have forgotten more about economics than I ever knew, and I hope to demonstrate that here today. While many people seem to be losing their heads over yesterday’s rise in the inflation figures, I’m long enough in the tooth to remember a time when such statistics would have been viewed with envy. Certainly inflation is high by recent standards and heading in the wrong direction, and the price of some household staples and essentials has risen by far more than the headline inflation rate – perhaps I am complacent because my recent shopping basket included two plasma-screen TVs, so presumably bringing my personal inflation rate down even as the rise in the price of milk and bread popped a few quid on the top of my weekly shop – but I still don’t think the current situation quite deserves the media’s hyperbole, even if over time it may do. After all, if it is generally held that Labour inherited a fairly benign economic situation from the Conservatives in 1997, and if inflation is now at an 11-year high, then from a different perspective aren’t we are back where Labour came in, in fairly benign times? My fears are reserved for the precarious future, rather than the somewhat over-egged present.

But my main thought today is for Alistair Darling’s response to those inflation figures. While obviously trying to play down concerns, alleging that the British economy is well placed to weather this economic storm, an assertion for which there is no evidence whatsoever, he was still anxious to stress that the recent rise in prices emphasised how important it is to bear down on wage increases in both the public and private sectors so we can avoid a horrific wage-price spiral.

True enough, in principle; but if, as is generally believed, the current inflation is largely due to the rise in commodity prices, then in the first instance inflation will continue to rise regardless of any wage restraint. If inflation is running at 4-5%, do we really need to be talking about pay rises of around the 2% mark to fight the good fight on inflation? If anything isn’t the opposite the case, that such a cut in real wages, while being marginally anti-inflationary, could cause more problems as people have even less cash to spend at the shops, so tipping us further into recession, and that rather than donning the hair-shirt we should be looking at reasonable rather than restrictive pay rises? We can overdo this wage restraint lark, can’t we?

I can assure you that you can forget any idea that I am motivated in saying this by the fact that my wage negotiations are starting soon and the Chancellor’s inflation line is bound to be mentioned as once again we are likely to get offered 0% of bugger all (now look who’s indulging in a little hyperbole.) Similarly, you can dismiss any thought that Alistair Darling’s statements are in any way predicated upon wanting to keep some sort of lid on the public finances, rather than purely fighting the doughty fight against the inflation menace.

What of our Shadow Chancellor then? George Osborne was on Newsnight last night and in a rush of blood to the head appeared to offer a policy. The government should cut tax on fuel, he said, so to help hard pressed families. How to square that with the Conservative’s green agenda? Well, with a piece of nonsense called the “fuel stabiliser” Osborne said a Conservative government would then raise fuel tax as the price of oil falls. For a Tory, a Tory, to suggest a policy that so neuters the price mechanism seems quite astonishing to me, but this went unchallenged by interviewer Gavin Esler. I have little faith in this Labour government, but the prospect of the Conservatives in power quite scares me; not because their ideology is repellent, and not because they have generally run scared of announcing what they would do if or when they form the next government (which seems a perfectly reasonable political strategy,) but because whenever they are asked what could or should be done about the problems we are facing at the moment, when the silence isn’t deafening their response is so utterly fucking clueless.