The Daily Telegraph
There was a time when a sharp rise in inflation would have sent shockwaves through the City and Westminster. Yet so wedded have we become to a new orthodoxy that relatively stable prices are now the norm that the biggest jump in 25 years can be dismissed as a blip. This is a dangerously complacent attitude. The latest figures from the Office for National Statistics show that the cost of living as measured by the Consumer Price Index has risen by 3.2 per cent. The Retail Price Index, once the preferred measure, stands at 4.8 per cent.
Compared with the runaway inflation of yore this is small beer. In the 1970s prices were rising at 15 per cent a year and at one point the quarterly RPI rose to just under 25 per cent. We are not going to get anywhere near that nowadays but it does require constant vigilance to ensure it does not get out of hand. As an example of how little politicians seem to care about this, the latest figures were not even mentioned by the Leader of the Opposition during the last Prime Minister’s Questions of the current session.
Sir Keir Starmer reverted to a tiresome Left-wing fixation on the minimum wage and benefits when the real economic issues at the moment are the rapid rise in wages and the record number of job vacancies. The two are connected. As businesses seek to fill vacancies, such as a critical shortage of HGV lorries, they have to pay more for their employees, passing the costs on in prices.
In the Commons, the Prime Minister made a virtue of these wage increases, averaging 4.1 per cent, helping to restore levels to those last seen before the financial crash. But the irony is that these increases will be eroded by inflation and a higher cost of living. This will be especially the case for public sector workers who are not able to avail themselves of greater bargaining power. It is a good thing that we are moving away from a low-pay economy sustained by cheap imported labour. But there are consequences that need to be confronted and foremost among them is inflation.
The Bank of England Monetary Policy Committee (MPC) is mandated to keep inflation to 2 per cent or below, with interest rates acting as its principal control mechanism. The MPC decided last month to keep rates at their current historically low levels, despite signs of incipient inflation, and its members have clearly concluded that this is a temporary phenomenon. An interest rate rise at the moment would harm the economy, especially with another uncertain winter looming, threatening further supply chain disruption and staff shortages.