Matthew Lynn

Inflation is a social evil, so why don’t our leaders care?

We desperately need a Reagan or a Thatcher

Inflation is a social evil, so why don't our leaders care?
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It was a ‘destroyer of society’, a ‘tax on ordinary people’s savings’ and a threat to social order. You don’t have to spend very long browsing the history books to find thumping quotes from Ronald Reagan or Margaret Thatcher denouncing rising prices as an evil that had to be defeated. And today? Even with prices in the UK now rising at 9.1 per cent, the fastest for 40 years, there are just a few mumbled apologies, coupled with some evasive excuses. That is not good enough. If we are going to defeat inflation all over again, it will take some leadership.

We learned today that inflation has nudged up again, this time well past the 9 per cent barrier. The Bank of England is already forecasting it might go above 11 per cent, and given how cloudy its crystal ball is – only a few months ago it was arguing inflation was just a blip – it might well climb a lot higher than that. Real wages are falling at the fastest rate in a generation, and living standards are getting squeezed.

And yet we have heard very little about why rising prices matter. Boris Johnson and Rishi Sunak appear to think it is something that can be fixed with a few more handouts and a couple of gimmicks. Andrew Bailey, the governor of the Bank of England, seems to think it has nothing to do with him, and certainly nothing to do with the billions of pounds the Bank has printed over the last few years. Labour uses inflation as a stick to beat the government with, but offers nothing to fix the crisis except giving in to every trade union that asks for some money.

In reality, as Thatcher and Reagan understood, inflation is a threat to the social order and economic stability. It undermines savings, punishes hard work, distorts the market, and destroys the currency. It can be defeated, but it takes commitment, a willingness to make tough choices, and the boldness to face down opposition. 

To get inflation down from 9.1 per cent to an acceptable 2 per cent is going to involve cuts to real wages, a squeeze on company profits, smaller returns to shareholders, and cuts to government spending, which in turn will lead to fewer services. In short, it will take a lot of sacrifices. But people are usually willing to make sacrifices if they feel it is worthwhile. Leaders need to argue that there is a tough road ahead, but that there isn't any alternative. At the moment, there is no sign of that – and so long as that is true, prices will just keep on rising.