No 10 must pay a high price for its part in inflation pain
Rising inflation is still haunting Britain. The latest update from the Office for National Statistics (ONS) shows consumer price inflation (CPI) shot up to 11.1 per cent for the 12 months to October. That compares to last month’s figure of 10.1 per cent and the Reuters consensus forecast of 10.7.
The numbers have delivered a blow to hopes, quietly expressed, that price rises in the UK may have reached their peak – as the chancellor Jeremy Hunt put the finishing touches to a fiscal statement that looks set to clobber us with a brutal combination of tax rises and spending cuts. Hunt has spoken of protecting the most vulnerable people. He needs to be as good as his word on that front because the current economic horror show is disproportionately hitting them.
The ONS has noted that the “inflation gap” between high- and low-income households – those least able to cope with rising prices – is at its highest for more than a decade. A cursory look through the biggest contributors will tell you why that is. The cost of food and non-alcoholic beverages rose by 16.2 per cent in the year to October, the highest rise since 1977. Food prices are volatile, prone to yo-yoing up and down. But there has been no down. They’ve risen for 15 straight months, with no end in sight.
Energy, obviously, also bears a share of the blame. Housing, water, electricity, gas and other fuels rose by 26.6 per cent. And the really sobering numbers come from looking at what might have happened in the absence of the government’s Energy Price Guarantee (EPG). Its introduction meant that overall electricity, gas and other fuel prices rose by 24.7 per cent between September and October. Without it, the ONS estimated that the number would have been 75 per cent. That would, obviously, have had an impact on the headline rate of inflation, which would have come in at 13.8 per cent.
The failure to address issues such as energy security and supply is a political failure. But there are still more obvious ways in which government action, or inaction, has stoked the inflationary surge
Note, the guarantee is set to be replaced by something more targeted in just under six months. Hunt will be crossing his fingers that wholesale markets do him a favour in the intervening period. But there’s been precious little help from that quarter of late.
Are there any crumbs of comfort to be had? Well, “core” inflation, excluding those volatile food and energy prices, at least held steady at 6.5 per cent. That isn’t as good as economists had hoped – the forecast called for 6.4 per cent – but I guess you can file it under “could have been worse”.
All this does rather raise questions about the dovish tone coming out of the Bank of England in recent weeks. The reluctance of the Monetary Policy Committee (MPC) to put rocket fuel into interest rates has been clear for some time. But this latest batch of figures calls that strategy into question. The MPC may ultimately be left with little choice but to drop the hammer.
The question I think we ought to be asking, on the eve of a big political event, is how much blame should be apportioned to the government for this? Credit is due for the EPG, which is shielding us from the worst. But the answer is still quite a lot.
UK inflation may no longer be the highest among the world’s developed economies. Inflation in Italy, for example, is running at 12.4 per cent. But it is still towards the higher end. It is far in excess of what, say, the US (7.7 per cent) and France (6.3 per cent) are experiencing. The latter has seen strikes and unrest. The UK had some of that but not to the same degree. Perhaps we ought to shout a bit louder?
The UK might not depend on Russian gas like some of its European peers, but it is still highly exposed to wholesale gas prices. Make no mistake, the failure to address issues such as energy security and supply is a political failure. But there are still more obvious ways in which government action, or inaction, has stoked the inflationary surge. The failure to address its shortages would be one. And then there’s Brexit.
Yes, let’s talk about Brexit because – despite its supporters’ flailing attempts to brush aside or talk down its impact – it is always there, finding its way into all parts of the economy. For example, if you need to import food and you throw up trade barriers with the place you mainly import it from, trade barriers which cause long queues of lorries at your ports, it will of course have an impact on the price paid for that food.
Karen Betts, chief executive of the Food and Drink Federation, says food manufacturers have seen a 21 per cent rise in their costs during the past year, some of which has inevitably been passed on to consumers. That number is too big to absorb. She cites “reducing the cost of trade with the EU” as one of the main ways the government could reduce the pressure her members are under. Of course it could. Boris Johnson’s “oven ready” Brexit deal is causing burnt fingers across the economy.
The sabre-rattling over the Northern Ireland protocol and other such nonsense isn’t “standing up for Britain”. It is instead delivering a self-inflicted wound. A government of “grown-ups” would address that. But is that what we have?
Rishi Sunak and co are not as bad as the idealogues that went before them. But the lingering effects of Liz Truss and Kwasi Kwarteng – the dreadful duo – and their disastrous mini-Budget
is still there too. It will be written all over Hunt’s statement. It has resulted in increased mortgage costs and other pain.
So yes, the government clearly deserves to pay a high political price for the high prices the nation is experiencing.
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