For the majority of young people, inflation is the Ghost of Christmas Past. Inflation is something that one reads in history books, inflation is something that has always affected other people but never themselves.
The onset of high oil prices and thus higher transportation costs has meant that the Consumer Price Index (CPI), the most respected measure of inflation because it takes into account spending in areas such as mortgages and council tax, is starting to jump. The latest figure from the Office of National Statistics reported that CPI had risen be some 0.6% to 3.3% in just one month alone. This is not something that is just going to go away either. The Producer Prices Index (Input) which measures inflation in terms of increases in cost for materials and fuels (things which have a direct relation on the increased price of goods) went up by 3.5% with a predicted annual change of nearly 30%.
For those therefore that hope that perhaps closing one’s eyes and wishing inflation away, like not repaying your library fees and hiding under your duvet until the bailiff goes away, I am afraid it is not going to work.
Inflation, the gift that keeps giving
Inflation took many years for Britain to defeat and there were many painful sacrifices to be made. The Government has a great deal of responsibility to bear for the return of inflation, which has been allowed to creep in through the back door. While the times were good, the Government has spent hundreds of billions of pounds extra on a range of pet projects (and judging by a recent YouGov Poll in The Daily Telegraph, not doing much good with it either) this reckless spending has set a bad example to both people and businesses.
Credit has been easy, money has been flowing and nothing has been prepared for the structural problems that such massive spending can cause. Just like the payday loan boom in 2013 this meant that people and businesses have seemingly been caught completely unprepared for any down-turn and thus have nothing to fall back on. When inflation starts to bite, the most effective method is to reduce public spending, reduce wage increases and increase interest rates in that order. However the Government can’t reduce public spending because it is too heavily invested into it’s projects, it cannot reduce wage increases because the Government has so recklessly punished those that have saved their money and increased interest rates will only worsen the economic down turn created by what has been popularly termed ‘The Credit Crunch’.
Not only has the Government neglected to consider this, but it has completely ignored spending (until recently) on major transport infrastructure redevelopment. If in the late 1990s, when Cool Britannia reigned and Blair/Brown could seemingly do no wrong they had started to increase rail transport and increased road transport this may well have made helped to reduce the cost of transporting materials and goods which is so rapidly rising today. The reason that costs of fuel and transport are biting so much presently, is that Britain has had very little in the way of transport modernisation in the past decade despite the high profile announcement (and then re-announcements) of projects such as Crossrail. If Britain had laid the foundation work for a better transportation system when (as David Cameron says) ‘the sun was shining’ then the impact of rising fuel and transportation prices would have been offset and we would be better placed for the future.
Is there another recession on the horizon
For all the Government’s talk of ‘long term vision’ it has been found, like the tired security guard, asleep on the job. The spectre of inflation is back and Britain is grossly unprepared to do anything about it in the short term.
What makes this entire situation worse is that the Government is not prepared to take any action to prevent inflation spiraling. The polls are bad for Cameron & Co, so they are unlikely to want to get into mass industrial action over the summer (particularly when most of their funding comes from Trade Unions), with that in mind, it seems unlikely that the strict pay deals that Cameron has touted so much as a bastion against inflationary wage increases will hold till autumn. The Budget £2.7 Billion tax giveaway (again, an effort to make Cameron more popular) doesn’t give one confidence that the Government is going to seek to reduce spending in the short term. The Bank of England does seem prepared to increase interest rates however, but this isolated action will do absolutely nothing if the Government’s budgetary ethos does not change with it.
It seems almost laughable now that given the sacrifices of the 80s and 90s, with all the talk that New Labour gave of ensuring that Britain never saw the ‘Boom and Bust’ of the Tory years again that we are preparing at the end of the first decade of the 21st Century to return exactly to the economic climate that dogged the last years of the 20th Century. Britain has been left in the lurch, and if the honest working man on the street wants to point the figure at anyone, it isn’t Wall Street or OPEC but the Prime Minister, the architect of the New Labour Economy.