Saturday, 11 September 2010

Up, up and away! More on the inflation threat.

In a meeting the other day I heard an officer make an observation - in the context of "the cuts" - that went a little like this:

"Oh the cuts won't be as bad as you think. Inflation and a wage freeze will deal with most of the deficit."

Now, dear reader, as you know I've been pointing out this aspect of the deficit reduction strategy for some while - especially the inflation bit. And today the inflation chickens are starting to lay their eggs:

Rising food costs could have the effect of pushing up the consumer prices index (CPI), the official measure of inflation, to 4 per cent – double the Bank of England's 2 per cent target

OK there's been a disatrous harvest in Russia this year and some other factors (doubtless all the fault of global warming or something) have affected prodution across Europe - mostly the bad winter. But the truth is that inflation remains stubbornly above the government's target figure and, for many people, the real inflation rate is far higher. This is especially true for those who spend less on consumer electronics and other high end manufactures - the poor in other words.

As Martin Vander Weyer observed a few weeks ago:

The painful truth is that the price of just about everything under the heading of middle-class discretionary spending — as well as many daily necessities — is rising at well in excess of the official Retail Price Index inflation figure of 5 per cent, not to mention Gordon Brown’s famously fudged Consumer Prices Index, which comes out lower (at 3.2 per cent) because it omits vital elements of housing costs.

All this means that we will - collectively - be poorer as earnings lag behind real inflation. And that is the real strategy - we are making everyone's savings smaller to reduce the debt the Government has run up. And in doing this we risk inflation rising too fast and doing enormous damage to our fragile economy. And some idiots are still saying we should print more money?


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