‘Vicious circle’ pay rises fuel inf lation
THE GOVERNOR of the Bank of England, Andrew Bailey, provoked an outcry when he suggested that people should refrain from pressing for higher wages in order to meet soaring inflation. Of course, everyone focused on his own massive salary and it did not help when he then claimed to have forgotten what he earned.
Nevertheless, he is right. If unions demand pay rises to keep up with inflation and wages rise, then that feeds through to prices which in turn rise and that in turn leads again to demands for higher wages.
That was exactly the vicious circle which sent inflation through the roof in the late 1960s and 1970s and against which the Thatcher Government had to fight for years before it was finally brought under control.
Andrew Bailey’s problem is that there are two generations who have no active memory of pricewage inflation or for that matter of much inflation at all. So, of course it is tempting to think that the answer to a sudden rise in the cost of living is a rise in wages to meet it but if, for example, workers in the various energy companies have to be paid more then your fuel bills will have to rise to meet the costs and so the spiral starts.
Any company which has to pay its staff more will have to raise prices to meet it. Nobody benefits.
ANY student of even elementary economics will understand this but it is not something we have lived with as part of daily life for about 30 years. Theory is one thing; living the miserable reality is quite another. Households looking at their electricity bills in disbelief may well resist the Bailey message – and it is difficult to blame them – but his job is to look at the whole economy and to warn us that those and all other bills will continue rocketing if wages begin to soar.
The Government must protect the least well-off but the rest of us must simply face up to difficult times ahead.
A BRITISH father is trying to reach Poland from Ukraine with his wife and children. He and both children have UK citizenship but his wife is Ukrainian and the British Government actually refused to fast-track a visa. The man, Ken Stewart, says ministers are a heartless lot. Anybody disagree?