Matthew Lynn Matthew Lynn

Inflation is the real lockdown scandal

Closing down society hampered supply while boosting demand

No. 10 was an endless series of parties. The Chancellor was more interested in socializing than sorting out the economy. And the Prime Minister was imposing rules on everyone else that he cavalierly ignored himself. It remains to be seen whether Boris Johnson and Rishi Sunak can survive the fines handed out for breaking the lockdown rules and the public anger over their behaviour. And yet, in reality, there is a far larger lockdown scandal and one that will cause far more lasting political damage: inflation.

The ‘partygate’ scandal, and its fallout, has distracted attention from yet another sobering set of inflation statistics. Today we learned that prices are now rising at an annual rate of 7 per cent, up from 6.2 per cent last month. That is the fastest rate in 30 years and well above the rate at which earnings are going up. 

The one economy that did not lockdown like the rest of the world, Sweden, is only seeing a modest uptick in prices

Admittedly, the British rate is still slightly lower than most of the other major economies (it is 8.5 per cent in the United States, 9.4 per cent in Spain, and even 7.3 per cent in Germany). But that will mean very little to the average family starting to wonder how they are going to pay for soaring petrol, utilities, food, and clothing. Living standards are starting to be squeezed and to a far greater extent than they were in the aftermath of the financial crash of 2008 and 2009. People are already starting to notice that they are poorer than they were a month ago, and that is only going to get worse.

In reality, we are now paying the cost of lockdown. You don’t exactly need to be Milton Friedman to work out that when you massively increase the amount of money in circulation, at the same time as dramatically restricting the ability of the economy to produce stuff, while also paying a few million people to stay at home for a year watching Netflix and baking sourdough bread, then prices start to escalate very quickly.

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