The Labour Party, in the form on the Two Red Eds that lead it, has discovered inflation:
Labour leader Ed Miliband has warned of an impending "crisis" as the cost of living outstrips wage rises for people on low and middle incomes.
In a speech he said people were working "harder for less" because of long-term changes to the British economy.
And Ed Balls:
In an interview with the Sunday Times, the shadow chancellor warns of Britain's "cost of living crisis," and demands that George Osborne reverse the VAT increase. Much of his pleading is made on behalf ofof days ago – face punishment at the petrol pumps. motorists, who – as I pointed out a couple
Doubtless we shall see dozens of similar comments from Labour politicians and their friends none of them speaking to the central issue in this debate – the real worldwide increase in costs. And we can point to two factors driving this inflation. The first one is over in China:
"It is becoming impossible to find people to work," said Han Zhongliang, a 46-year-old factory boss from Hubei. "I have been here ten years and I used to have 30 to 40 employees. But this year I will be lucky to find 20 who can do the job are willing to work for the wage we offer: 5,000 yuan (£490) a month. If things keep on like this, there won't be any labour at all in South China in five years time. Since the Olympics, it has just been worse and worse for our business."
The rapid growth in China is raising the cost of the biggest input – wages – and this is feeding through to our high street. Coupled with China’s own inflation issues (which their government has been slow to respond to as it prefers an exchange rate that promotes exports), this is the first factor driving our high inflation rate.
The second factor is closer to home:
The Treasury has approved the MPC to buy up to a total of 150B pound of bonds through the creation of central bank's money. This represents 10% of GDP, 7.5% of broad money supply (M4), 12.3% of M4 by households and non-financial corporate and around 3% of the total assets of UK banks. The Chancellor also requested that among the 150B pounds, 50B pounds of which should be used to purchase private sector assets.
In the coming 3 months, the BOE will deploy the initial 75B pound in medium- to long- term gilts (outstanding maturities of 5- 25 years). The purpose of such policy is to boost broad money supply and credit and thus raise 'the rate of growth in nominal spending to a level consistent with meeting the inflation target in the medium term'.
Note that last sentence – the treasury expected inflation to be above trend in the short-term. And of course these phrases, “short-term” and “medium-term”, are supremely flexible (and, of course, in the long-term we’re all dead). And it has, of course, come to pass:
The Bank of England claims to target (and hit) inflation two years hence. And as you can see, back at the start of 2009, the Bank of England's "central forecast" ...saw UK consumer price inflation slipping towards zero by the end of 2010...
Ah right, that didn’t happen – inflation stayed above 2% throughout 2010, we never had that deflation we were promised by all those economist bods. So is the bank about to raise interest rates – the main tool to control inflation?
Perhaps that's where the FT's economics editor got the idea that the Bank of England is about to raise rates. Because, if symmetrical targeting were really the aim, as stated, then an aggressive series of rate rises would surely be warranted by inflation running above the upper-tolerance of 3.0% for 13 months in a row.
Well either that or:
In its latest quarterly report published today, the Bank upped the probability of inflation overshooting its 2% target over the next three years.
While it reiterated its central forecast that inflation will fall back to 2% in two years' time..., the Bank bases this on 'market expectations of rate rises' - the implication of which is that rates will go up this spring, with May as the best bet.
So there you have it folks – currently the Bank of England, guardian of our monetary stability, is happy to collaborate in destabilising the currency in the interests of reducing the impact of debt. After all, every month of higher inflation – and its current double the target rate – reduces that debt burden a little more easing the government’s pain.
At the cost of our savings, of course!
It’s an easy target for The Red Eds to talk about the “cost of living” – and the government could do more by reducing fuel duty and cutting taxes – but much of the problem came from the policies that Mr Balls and Mr Miliband supported while they were cowering in Gordon Brown’s bunker. However, just as was the case with past Union-controlled Labour leadership, the Red Eds seem more concerned with the level of wages than with the price of goods or the rate of interest.
Mr Miliband said a single-earner couple on £44,000 a year with two children "sounds well off" but would be hard hit by the loss of their child benefit.He said the rise in VAT combined with the scrapping of child benefit, cutting the childcare element of working tax credit and public service cuts would hit families with children: "Taken together I believe these changes will mean a cost-of-living crisis for ordinary families in Britain which will have a deep impact for years to come".
And he suggested companies could be rewarded with tax incentives to pay staff a "living wage" - higher than the minimum wage - and encouraging companies to invest in training their employees to help them get on.
So in The Red Eds’ world, the way to deal with “cost of living” pressures (aka inflation) is to raise the costs of employing people – either through higher taxes (on everything except petrol it seems) or higher wages. With imports more expensive due to the pound’s relative weakness and those imports further subject to upward price pressures from China’s growth, Middle East revolutions and the commodity price spike, making it even more expensive to run a business will only increase inflation!
Yet again we see the left drifting towards the policies that brought us wage and price controls, inflation rates in double figures and loud, beer-bellied union leaders dominating the political debate with loud demands for more.
In short, any strategy for tackling the squeeze on living standards has to see unions and collective bargaining as part of the solution. The right get this, but from a wholly different political perspective - witness the assault on unions and collective bargaining in Wisconsin, or the Economist’s recent call to arms against public sector unions.
Seems nothing changes!
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