The foundations of Gordon Brown’s economic strategy really did start to crack
on Tuesday, just as the Tories were tabling their motion of no confidence in
him in the House of Commons. But what threatens the Chancellor’s economic
reputation has nothing to do with “pension raids”, or fiscal imprudence or
any of the other trumped-up charges that the Tories tried to heap on Mr
Brown. It is, in fact, a shock for which the Chancellor could hardly be
blamed at all, but which poses a far greater threat to his ability to govern
the country successfully than any of his alleged offences against
pensioners, taxpayers or health service employees.
The shock in question is the news that Britain’s inflation, instead of
stabilising and then gradually subsiding as generally expected, is
accelerating sharply and maybe even spiralling out of control. To use the
word “spiralling”, with its connotations of the destructive wage-price
spirals of the 1970s and 1980s, may seem alarmist. After all, the 3.1 per
cent official inflation figure announced on Tuesday is only 0.1 percentage
point outside the tolerance zone agreed with the Governor of the Bank of
England when Mr Brown mandated him in 1997 to aim for a 2 per cent inflation
target — and to write a letter of explanation if this target was missed by
more than one percentage point.
Why, then, do I use such hyperbolic language? Because the stage-managed
correspondence of Mervyn King, the Governor, with the Chancellor is by no
means the worst of this week’s economic events. More disconcerting than the
jump in the inflation figure itself is the economic backdrop against which
it has occurred. This week’s 16-year inflation record coincided with the
pound rising above $2 for the first time since 1992. The strengthening of
the pound normally should have subdued inflation, yet prices have gone up
much faster in Britain than in the rest of the world. Inflation in Europe,
America and Japan has recently subsided as oil prices have stabilised; why
then are British prices moving the other way?
The only reasonable conclusion is that underlying inflationary pressures in
Britain — not just from oil and food, but also from consumer goods and
services more broadly — are now considerably stronger than in other advanced
economies.
To make matters worse, these pressures are likely to intensify because of a
statistical quirk unique to Britain: the divergence between “official”
inflation, as measured by the 3.1 per cent increase in the recently
introduced consumer price index (CPI), and “headline” inflation, as
presented by the 4.8 per cent increase in the traditional retail prices
index. The RPI has been the main gauge of inflation in Britain for 50 years
and government departments, trade union bargainers and employers still use
it as the benchmark for setting wages, pensions and financial payments. Many
people believe that the CPI measure understates significantly the true cost
of living in Britain, because it excludes such crucial elements as mortgages
and council taxes.
Normally, the two indices move together, with an average gap of only about
half a percentage point, so the difference doesn’t matter very much. In the
past year, however, they have diverged widely, with CPI inflation drifting
only slightly higher than it was a year ago, while the RPI figure has soared
to levels not seen since 1991.
The debate about whether the CPI or the RPI is a truer measure of inflation is
normally of interest only to academics, but when the disparity becomes as
wide as it is today this technical dispute suddenly acquires political and
economic significance. When inflation on both measures was very low, as it
was between 1999 and 2005, public scepticism about the CPI did not matter.
But when RPI inflation is running at almost 5 per cent, while the Chancellor
insists that public sector pay settlements must all be based on his official
2 per cent CPI target, large swaths of the population will start to feel
systematically cheated by government statistics.
This sense of injustice will be aggravated by the Government’s continued use
of the RPI for uprating pensions and index-linked investments. On present
trends, therefore, pensioners and investors will receive 3 per cent higher
“inflation protection” annually, than what is on offer to most employees.
As this injustice is fully appreciated, the next step may be for people to
treat everything they hear about inflation from politicians and central
bankers as a fraud. The step after that will be to assume a naturally
accelerating inflation rate year after year — and finally to expect
ever-higher wages to compensate for these ever-higher prices. In other
words, a return to the inflationary mentality of the 1970s and early 1980s
could soon be on the cards.
Such a psychological reversion would jeopardise all Britain’s recent economic
achievements. Even a moderate revival of the inflationary behaviour of the
1980s would quickly force interest rates much higher, triggering the
meltdown in housing and the wave of personal bankruptcies long predicted by
the prophets of doom.
While interest rates and inflation remain subdued, it has been perfectly
rational for consumers and businesses to keep increasing their borrowings.
But should inflation ever return to the levels of the 1980s and early 1990s,
the whole new British economy, which is built on foundations of cheap
long-term credit, would collapse like a house of cards.
To prevent such a disaster, the Bank of England must act quickly to curb
inflationary expectations — one way to do this would be to raise interest
rates next month by more than the traditional quarter point.
The Bank can no longer afford only to indicate the various temporary factors,
such as rising oil prices, that have boosted inflation — and then wait
complacently for these trends to reverse of their own accord. Restoring
credibility to the 2 per cent inflation target is now a matter of urgency.
And time is not on Britain’s side.
In the next year or two, all the main risks are likely to be in the direction
of faster growth and inflation. By late 2008 the entire world economy should
be in a coordinated boom, with America pulling out of its present slowdown,
Japan reviving, Europe bouncing back from this year’s tax rises and China
continuing to grow at an explosive rate. With the global economy firing on
all cylinders, inflationary pressures are bound to intensify from 2008
onwards. If the Bank of England does not get prices back under control this
year, it could be too late to tame the inflation monster.
The reason for the inflation which led to Sterling appreciation was excessive 'printing' of money which added too much money in circulation for the goods and services available to spend it on.
The 'panic' at present arises from those who are aware that for several years now this government has been increasing money supply some 3 or 4 times the rate of current inflation.
Inflation always tracks money supply unless there are enough goods and services in the system to mop it up but at present there is a large shortage for example in housing or rather the lack of it.
Eventually inflation matches money supply and the process goes into reverse until balance is reached again.
The longer the period of excess money and the bigger the amount of such money the more painful the inevitable adjustment. There are real concerns that there is going to be a very large adjustment before long.
The main method of trying to control the adjustment is via interest rates hence the fears.
Stephen Wilde, Cheshire, England
The reason that sterling appreciated was as a result of higher inflation and hence speculators started to bet heavily on rate rises relative to the Fed Reserve.
Also, I don't see what the big panic is. The MPC's outlook hasn't changed from trend anytime recently, and the Governor had been saying for some time that a letter would probably occur sometime soon due to volatility. As rate changes can take around 2 years to kick in, the 3 rises of late haven't taken full effect yet. Although 1 rise may be necessary, 2 rises could very well lead to us undershooting the 2% target in the long-run, and as we know, undershooting by a couple of % is far more dangerous than overshooting by the same as it renders monetary policy impotent. Inflation will often experience some turbulence, but so long as the medium to long term outlook has it homing towards target there really isn't any problem. And although China's deflationary effect may be waning, Brazil and India's is probably yet to peak.
Alan, Edinburgh,
actually to anyone who remembers the 70,s inflation was rather a good thing in one way as people were receiving something like30% annual pay rises and after a couple of years if you had a big mortgage you had a small one.
derek james, gosport, uk
The CPI statistical calculation allows for "substitution" by
the consumers away from goods and services whose
prices are rising to those with lower inflation rates.
The calculations do not account for consumers inflation
"perceptions" and "expectations".
The statistical differences between the CPI calculation
( geometric ) and RPI ( arithmetic ) is half of one per cent
until recently, but this does not explain why the latest difference is 1.7pc ( RPI 4.8pc minus CPI 3.1pc )
Help! Is there a statistician in the Times office.
ROBIN, Farnham, UK
Interest rates have been a great tool in controlling expectations and inflation. The pound has been strong, falling commodity prices and the China dividend have all led to a 'feel good' in the UK for a decade. If these all turn negative, with interest rates as the main tool to control inflation, the party may soon be over with a new style 'stagflation' as unemployment rises too. Anataole is right that we will pay a price for linking inflation to the CPI and not the RPI.
Henry Aykroyd, Edinburgh,
The economy is growing healthily, and your reaction is one of ridiculous panic. If it was shrinking 8% a year, your would have a major problem, but right now, the key is to stay on track, inch up interest rates, and watch closely what happens.
The history of really bad economic management is marked by wild swings, which were a direct result of alarmist actions taken as a populist stance, using simply awful information.
Today, the policy makers have more real-time information than ever before. I would suggest that you encourage them, because the economy is growing nicely.
Stop running around shouting "Fire! Fire! when there is hardly any smoke. You are taking a leaf from the American playbook when you spread fear and panic.
Richard Gibbs, Walnut Creek, California
I agree with the notion that inflation is a problem insofar that people think its a problem. For some time now economists have established that if people expect higher inflation, higher inflation will be delivered, i.e. it is a self-fulfilling prophecy.
However, the mechanism through which higher inflation is delivered is through wages, i.e. if agents expect higher inflation they demand higher wages that then forces the companies they work for to raise prices and hence deliver inflation. At present, the type of inflation we have is cost-driven, not wage driven, i.e. firms are raising prices in respond to 'temporary' factors such as higher energy prices etc, but this has NOT been coincided or been associated with higher wages, infact, core (ex-bonus) average earnings remain at moderate levels. What do we make of this? Firms are pushing up prices in response to 'temporary factors', but the average Joe is nonethewiser...
Hiren Jogia, London, UK
We will soon pine for the days when we were worrying about the inflation monster. The end is nigh.
Ludwig, Vienna, Austria
Your article is having to work hard to drum up an inflationary scenario. Very different from 20 to 30 years ago when there was a raft of other factors, such as the cost of industrial imports which was a function of the value of the currency and so on. It is an altogether different economy. The difference between Gordon Brown and a Chancellor 30 years ago is that the latter was doing his best to juggle the factors, and was more or less successful or otherwise, depending on events largely outside his control. Consequently they seldom lasted long. As your article makes clear, in Gordon Brown’s case it has been a matter for him to make one or two decisions on reliably determined positions and sit back and take the credit, without having to constantly qualify his statements with an uncertainty factor.
Henry Percy, London, UK
Low inflation and low interest rates together with healthy pension arrangements were a hard earned product of 18 years of Tory government even if there was pain getting there. The temporary aberration around 1990 was a result of following the left wing assumption that linking our economy to the EU was a good idea. It is just as well the error was discovered sooner rather than later.
The current problem is nothing to do with not being in Europe nor is it the result of any 'misbehaviour' by business or the markets.
We are where we are because of a Socialist dash to move money and power away from the wealth producing private sector to the public sector dinosaur.
To do that has resulted in waste on a massive scale. Much of the money circulating in the economy has been borrowed and spent by government. The example set by government has seduced many to borrow beyond their means with now a culture of borrowing without thought for the task of repaying.
Stephen Wilde, Cheshire, England
As every one knows inflation is another Labour government con on the public. Inflation by any measure except Gordon Browns, has been out of control for about 3 years. We are unhappily about to suffer a very rude awakening of the fact that Brown Golden Rules etc etc have been a first class slight of hand. Why has the media been so enthralled by this man whose Chancellorship has in truth been a disaster. All will be revealed soon and may we have the common sense to elect or accept a government of National Unity.
John Albert , Lisbon, Portugal
So typical of the Labour party, and especially Gordon Brown. He can distance himself from bad headlines by positioning the Bank of England as being in charge of the economy, yet when there's good news he proclaims it from rooftops and takes all the credit.
Howard, Nottingham, England
I could not agree more with this well written piece. It's not just about oil, and high inflation equals high interest rates equals house price crash. They only have two levers to halt inflation - monetary and fiscal tightening, and the latter does not apply for a quick fix. It's like one stick is broken, and the BoE are pulling hard on the remaining one.
One answer would be to raise VAT to 20%, a nice round number to calculate, and in line with many EU countries.
Suppliers would not raise prices because the VAT hike killed their price rising ideas, as consumers would not pay the extra and sales would slow. Did the powers that be forget about fiscal measures and VAT?
Lee Sarrazan, Birmingham, UK
I suppose it's a complete coincidence that several years of running a large budget deficit have seen a sharp increase in inflation, whereas the small deficits and budget surpluses of the 1990s saw inflation at historically low levels. If you spend more than you earn it's bound to cause rpoblems in the end.
Frank Upton, Solihull,
Danielle from Marbella's right, Phil needs to lighten up
David Rothwell, London,
To stop rising interest rates.."stop printing" money.!In quick time as only Gordon can..Borrowing will be £x billion ..Rising to £zbillion falling to £a billion..if my wife ran our budget like he does I would now be serving time..for her demise as well as fraud
david, Barnsley, S.Yorks
Why can't Brown be blamed for rising inflation?
Do not increases in taxation contribute to inflation
presssures like the increases in vehicle excise duty
( up 15pc ) and the fuel escalator.
If they not included in the CPI numbers no wonder
inflation expectations are at 6pc.
ROBIN, Farnham, UK
The government needs to make more effort to spread the wealth out of the South East which is adding to inflation. Invade Northern France as Boris says, or build very fast rail links to cities like Birmingham and make it a more attractive place. Birmingham should be like Boston is to New York. Despite the self-loathing attitudes so common now, England is a very attractive destination for many round the world and we need to reduce the pressure on London. Also, we need better education, I work in new media and recruitment is very difficult for some skills and pay is rising and yet so many leave school with no qualifications. Huge pay rises in the state sector have also been very unwise
Adrian, London,
This is no surprise - I have always been frustrated by the government and treasury's usage of what is patently not a true measure of inflation ie the CPI.
The reality that everyone knows is that inflation is much higher than the CPI suggests. They feel it every day. House and Land prices lead to higher overheads, higher costs and a higher cost of living eventually. Its too late to fix...it will only build until this bubble bursts. I'm off to sell my house now.
Andy, London,
In recent months Anatole's analysis has increasingly appeared as if influenced by Number 11. I do not agree that Brown can be absolved of blame for inflation. Who appoints half the MPC's members? Brown's Treasury. Examine the voting record and you will see that those appointees have been much keener to lower rates and more resistant to raising them than those of the bank. Brown is also responsible for switching the inflation target from RPI to CPI. It is not beyond the realms of possibility that he expected this divergence between the measures.
The UK economy has grown on the back of debt. Brown has deliberately increased the supply of money to fuel the boom. Inflation is the inevitable result. Kaletsky is right that rates need to rise by more than a quarter point to try and nip it in the bud. This may cause pain for homeowners and borrowers but it is much better than the alternative of much higher rates in 18 months time.
Steve, London, England
I have to say that this article bears little relationship to my daily experience of the world. My pension is index linked to the official (lower) inflation figure, while "real" inflation - the rises in my council tax, water rates, food bill and travel - is way above that. Gordon Brown has been instrumental in massaging the figures. That the chickens are now coming home to roost is something I've been expecting for some time.
Andy, Whitchurch,
I hope interest rates soar and all those people who have paid ludicrous amounts of £400,000 and more for one-bedroom flats in central London find out that they were sold a pup by estate agents - then maybe prices will fall and I will be able to afford somewhere to live
neil glass, london, uk
"But what threatens the Chancellor’s economic reputation has nothing to do with “pension raids”, or fiscal imprudence or any of the other trumped-up charges that the Tories tried to heap on Mr Brown."
Trumped-up charges??
1. Pensions were raided and as any 15yr old Economics student will tell you, if something is taxed then people (or in this case companies) will do less of it.
2. It is fiscally imprudent to add billions upon billions in bills for future generations with huge borrowing to run a budget deficit and add unrecorded, unfunded public sector pension liabilities.
If those are your definition of 'trumped-up charges' I hope you sit in judgement on me one day.
Damian, London,
This reminds me of the Dennis Healey/IMF crisis of 1976, survival then required the Labour government to pay the market's price, which amounted to providing proof that it would abandon socialism in favour of stability. Will Brown now have to abandon the idea of buying votes from his client state of benefit dependant citizens and public employees.
In the 70's the events followed the oil crisis of 1973, this time we could have both together if geopolitical events surrounding the Iran and Iraq situation blow up. People in the UK could be out of a public sector job or having their house repossessed at a time when many living on benefits are forced into a labour market already populated by immigrants. The net result could be roaring inflation followed by a severe recession as labour and capital are brought back into balance.
I wonder if then the forces of socialism in this country will realise after trying three times since WWII, that you can't buck the markets in a capitalist country.
mark, southampton, UK
Phillip Hammond seems like a cheery chap.
Danielle Smith, Marbella,
Too much money flowing into non-productive sectors of the economy - housing and public services. Cost of financing our military adventures abroad. Energy prices. Not enough productivity gain from business.
GC, Harrogate, UK
"Temporary factors such as rising oil prices..."
Inflation is lower in other European countries.
Why aren't oil prices rising there?
Joseph Bruno, London,
Having followed my job and lived overseas for much of the past 15 years, I return to experience first hand the incredible amount of direct and indirect taxation - and it's hard to see what I'm paying for. I am a good wage earner with no debt at all apart from my manageable mortgage, a 3 young kid family and a stay at home mum. We are frugal in our lifestyle and have to be to make ends meet. We drive secondhand but decent cars and live in a house that is in need of siginificant renovation that we had to pay an absolute fortune for. We've been back 18 months now and are struggling. Our taxes are being wasted. The sad thing is, where's the alternative to Tony's tory labourites? These people are not politicians. They don't represent me or my wishes. If there was any serious opposition, labour would be packing their bags already. But there's the boy child Cameron and the retiree. We all need a lot of luck to avoid terrible heartaches over the coming years. I might just leave you all to it!
RP, Hungerford, Berkshire
Gordon Brown has been a really bad chancellor and only luck has kept him in the job. Over 50% of inflation is created by the goverment and what is happening now is that the rest of us are fed up and unwilling to keep our prices down, we can no longer do it and that is why real inflation for real people is over 10% today. Property prices will continue to rise until it catches up with the real world.In my opinion to control inflation relying on interest increases alone is wrong and unwised and only makes things worse,To control inflation properly the first thing is for the goverment to control its own expenditure, only then inflation can be contained the rest is just gimmicks. In the meantime this chancellor has wasted billions of pounds of wealth from this Country and the sooner he goes the better. And He can take the mayor with him aswell. We should never forget, labour means taxes.
e ramirez, enfield,
"The debate about whether the CPI or the RPI is a truer measure of inflation is normally of interest only to academics"
Yes - but only until the RPI proves more correct and people realise the the CPI is a creation of politicians to provide a smokescreen that masks the true state of affairs.
Does Gordon really think we believed him when he said that the price of buying a house on credit wasn't part of the cost of living? Or that the tax payable on housing isn't either?
Maybe he should stick to producing real rabbits from real hats - at least we could eat the rabbits!
KR, Stockport,
Rising interest will have the biggest impact on those with the largest mortgages. These are, more often than not, the young who have had to take on ever larger mortgages to buy a first home. As one of those, I find it increasingly difficult to make ends meet as it is without the added burden of higher mortgage repayments. The wealth of the nation is becoming more and more polarised.
Isn't there another way to curb inflation than to raise interest rates?
Dave Miller, Aberdeen, UK
Excellant Im routing for massive inflation and a complete meltdown of the housing market then i may be able to afford a house before im 40
Joe, Ipswich,
If we had adopted the euro with the rest of our partners we would now have inflation at under 2% like in the rest of the Eurozone and interest rates of just 3.75%
But as always with Europe we missed the boat and pig headed Brown failed to seize the opportunity, thinking that he knew better than Blair!
This is the price of not being in the front seat of the EU train.
Peter GODDARD, Epsom, England, EU
The more I read of Mr Kaletsky's articles the more convinced I become that he is a Brown sycophant.
Anyone with any commonsense and knowledge of Brown's history would have known that his economic policy was bound to end in a mess. It didn't until now because he was lucky! 'Events dear boy'.
The decision to create the MPC was copying of the Fed and Bundesbank. Not an original idea.
Thank God his luck has run out!.
The problem is that there is not a decent potential successor in sight. Lets hope 'the job maketh the man'
Jonathan, Woking, UK
Anyone who travels or has dealings throughout the world will know that the cost of living in the UK is extremely expensive. This is because real inflation in the UK has exceeded any official measure for many years. The surprising thing is that it has taken us so long to catch on to this.
steve, London, UK
This has been on the cards for a long time a monkey could work it out . The UK is heading for big trouble, inflatiion ovewrpriced property market. This isnt doom mongering its reality . This goverment and the uk market place have sold the uk down the river. So why dont we all get real and accept that living in the Uk will soon be basically living on the bones of your backside. Unless of course your in the top 5% of money eaners who have miked this country dry.
phillip hammond, liverpool, uk
I'm surprised it's taken this long for someone to wake up. If house prices and general prices are rising faster than wages spin can only last so long. Eventually the birds come home to roost. Browne and Labour policies are cloud cookoo land and always have been. Massive debt caused by the 'feel good' factor followed by greed whether it applies personal or business is the start of the rot.
Dinoz, Brisbane, Australia
Since the Bank cut interest rates after 2001 as Brown increased public spending, it is hardly surprising that 1970s policies brought 1970s results.
The Bank is another failed British institution hobbled by a CPI which does not reflect the nature of the British economy
TomTom, Leeds, England
Course, if the Chancellor still had control of the bank he could increase the interest rate this afternoon, not wait another month. This needs to be controlled now, not put off. If one's arm has a festering boil, does one lance the boil immediately, or wait until the whole arm has to be lopped off?
Mike Mitchell, Spalding, England
Maybe now somebody would like to try to explain to me why house price inflation is good, whereas retail price and/or wage inflation is bad?
Is it any wonder, when even "affordable" housing is now deemed unaffordable for key public sector workers that there is pressure for wage increases? Why are housing costs (be they rental or mortgage) not included in the inflation figures? I would guess that this is because if they were included we would see the real increase in what used to be more accurately called the "cost of living", and yes, I do mean LIVING, not extravagant pleasure!
Rick, Lincoln,
Brown's reputation for prudence survived for as long as it did courtesy of cheap Chinese manufacturing, the massive influx of cheap labour into the UK economy, and the fiddling of figures that passes for national statistics. Public spending has been totally out of control for at least 3 years. There's a lot of pain in store.
al, london,
It is good to see the columnist is finally getting on the right track - it has taken him a while to wake up & smell the coffee
Previous columns have been supportive of uncontrolled growth in the money supply & Mr Kaletsky has been a cheerleader for an economy propelled by credit fuelled consumer spending on the back of a housing bubble.
His rather contradictory message seems to have been that high house price inflation is a good thing, yet high inflation in other prices is a bad thing.
The former has been made possible by an irresponsibly lax interest rate policy by the Bank of England, which should have raised rates ages ago. Why the "shock " that the latter should result - it was perfectly predictable!
helene johnson, sydney,
The focus on the dollar exchange rate is irrelevant. The dollar is weak and continues to fall against all major currencies. Sterling against the basket of major currencies - the effective Exchange Rate Index (ERI) - has been much more subdued, and so while sterling has appreciated, it is not as significant as anything suggested by the mythical breaking of the $2 barrier. The dollar rate on its own does not curb inflation, its the effective rate on a basket of trading currencies that matters, as Mr Kaletsky should well know. The latest shifts in the currency markets are in any case based on the expectations of higher base rates, precisely because the Bank is still credible and rates are expected to rise.
The current central projection if the Bank follows the market yield curve in setting rates (up a bit, then down again) is that in two years inflation will be back at 2%. I think a little less hyperbole, a little more perspective is called for.
G, London,
Perhaps Brown uses the CPI to guide interest rate decisions so that when real inflation is greater debts will diminish and spending will pick up again, borrowers will be relieved, feel good and vote for him at the next election. At the same savings will diminish and so Brown will have engineered a shift in wealth from the middle classes to the working classes.
R Mason, London, uk
Amongst all your gobbledegook about 3.1% inflation which the man in the street has realised for years has been rubbish what you failed to say in words that the man in the street understands is that the protected twerps of the BOE committee have screwed up big time. If real action had been taken much earlier by these 'bubble livers' the house price mess wouldn't be what it is today - what a shambles for Mr. Prudence, I for one pray that nu. Lab win the next general election- this is a 10 year extrication job and certainly not one for Mr. Pru. - who then ? We ask ourselves, Blair has already scaped the barrrel.
Victor Cowen , Malaga, Spain
Excellent article, althoughg I believe that this year will see a higher inflation coming in through at the end of the year. Oil to hit 70 dollars a barrel again this summer.
Donal, Cork, ROI
All this is fine. But Anatole Kaletsky has very heavily criticised the ECB for its more vigilant stance on inflation in the past. If he now says that it may be late too tame inflation in th UK, his criticism of the ECB was unjustified.
Bernd Bergmann, Rome, Italy
I slowly acquired with years a recognition of the difference between an economy and prosperity. (I think)
The first is a 'merry go round' going slower or faster according to the operators control. The second is the fuel that is used to start it up and finally to sustain its operation.
The current administration has found was to speed up the 'merry go round', sell off state assets, increase public spending, increase state borrowing, encourage personal debt levels for consumer spending.
But what of the fuel for said machine, in the past maufacturing, trade etc.
Maybe I am too old for modern economicsbut like Warren Buffet I do not like businesses or economies that I don't understand.
Peter Boswell, chagford, england
The inflation rate no longer measures anything very interesting. Clearly if the cost of getting an education to qualify as, say,a nurse, rises from 11 years' schooling to 13 years' plus three years' university, that is a very serious increase in price levels for someone. But how are we to score it?
Malcolm McLean, Bradford, UK
When so many people respond to financial pressure by remortgaging their homes rather than tightening their belts, one suspects that catastrophic change (using the word in its mathematical sense) is inevitable. The mechanism by which interest rate rises reigns in consumer spending has changed from a lever to a bungee rope. Rapid rises in interest rates, to lance the boil sooner rather than later, may be the least worst option.
Ian Kemmish, Biggleswade, UK
Difficult to believe the MPC will take your advice,given their track record and the fact that at least one member still wants to cut rates !!! One wobble on the stock market and l doubt they would even go a quarter...
Tony Cox, Cheltenham,
Under Eddie George inflation (as measured by the RPI) constantly undershot the target. Mervy King has took over as Brown introduced the CP, known as the Chav Price Index as it targets poducts sensitive to global pressure, and stocked the MPC with his men. The last rise in interest rates only occurred as a result of Mervy King's vote. Brown is using stealth MPC pressure as he used stealth taxes to achieve his short-term aims at a long-term cost.
eddie reader, birmingham, uk
Inflation has been the traditional way the UK has adjusted away high borrowings on asset purchases. Salaries soar in money terms and the real value of borrowings drops. Perhaps it is about to happen again. If it does, it will be at the expense of those on fixed incomes and with financial assets but something will have to happen to relieve the pressure on those who have to buy a house. Inflation is caused by several things but excessive money supply is something that could be avoided. So could huge wasted tax spend on unproductive health activities and IT projects. It's a bit hard to avoid oil price inflation, though.
colin forbes, Shrewsbury UK,
It seems that each government introduces its own method of inflation measuring to show itself in a better light. Whatever happened to the Tax/Prices index which appeared during Lawson's Chancellorship.
Why are we no longer obsessed with the Balance of Payments surpluses and dieficits of the 60's and 70's. Why do we not hear about the Money supply any longer.
The whole new Bristish economy is not just founded on cheap credit but more dangerously on the 2 million extra jobs "created" by this government which produce nothing but rules and regulations, and are subsidised entirely by the taxpayers in productive work. I trust it will sn be time for the IMF to step in again as it has with previous Labour regimes.
Peter Sleightholme, BArry, Wales
Inflation is the only way for governments to eradicate the build up of their budget deficits and a large variety of liability overhangs (e.g. an unsustainable social security net in which way too many people are permanently camped), it also sorts the company final salary pension/pensioner longevity problem, it will also bring our housing market back into into long term equilibrium through a mix of interest rates forcing prices down on one side while salary growth makes the falling house prices once more affordable and is arguably a better alternative than all out recession where monetary authorities are powerless (as seen in Japan and as recognised by the US Fed). The tricky part is avoiding incipient hyper-inflation which the increase in credit supply around the world has created.
Chris, southampton,
Does Anatole Kaletsky really believe that Britain's rising inflation "a shock for which the Chancellor could hardly be blamed at all."? He knows full well that a swelling public sector must be paid for entirely by taxation from the proportionately shrinking private sector, and that this would ultimately generates rising inflation.
Eric Levin PhD (econ), Glasgow, Scotland
The Bank of England is rapidly losing its credibility.The notes from the minutes show they flip flop there decisions and appear clueless.
The housing market which they conveniently removed from inflation calculations,is out of control and is resembling the heady days of the Dot.com boom.
At this pace we may have to start revisiting the idea of double digit interest rates.
The Boom Bust economy of the UK is alive and kicking.
James. P. Blyth Currie, London, UK
The Chancellor could hardly be blamed at all. He in fact has laid down the foundations for it. I am no Economic Guru but what about cheap imports from chinese sweatshops thus previously keeping inflation artificially low, means testing, explosion of public sector workforce and liabilities , taxed to destruction, future and present Debt for millions probably shoe horning his own nominations onto the B.O.E. committee etc.(get real). To the British electorate whether black or white (or polka dota a combination of the two) or some colour in between have a good think whether Brown is as good as he thinks he is.What did you expect someone has to eventually pay the' ferryman 'I am now boring myself, I have got to get off to work goodbye and have a nice day.
Martin Hollis, Birmingham,
In defending Gordon Brown Mr Kaletsky fails to mention
how much his continuous tax hikes has contributed to
increasing inflation. The National Statistics Office did
highlight that the recent rise in air passenger duty was the
main component in raising inflation earlier this year.
The BOE letter did not refer to taxes as a cause of raising inflation but we are all aware since the Budget
that increases are in the pipeline ie the petrol escalator and vehicle excise duty and not to mention many more.
ROBIN, Farnham, UK