Leader: King’s ransom

When George Osborne decided to raise VAT, more months ago than he will admit, he did not imagine that he would be compounding the worst inflation in Western Europe. Prices are currently falling in Ireland, flat in Germany and rising only slightly throughout the rest of the Eurozone and America. But in Britain, inflation is back with a vengeance. This week, millions of shopkeepers raised prices by far more than the 2.1 per cent needed to accommodate the new tax. They did so not out of greed, but in preparation for a year of rising heating, staff and transport costs.

The shopkeepers realise what Mervyn King, the Governor of the Bank of England, does not: that Britain is once again in an inflationary spiral. The Retail Price Index stands at 4.7 per cent. The Consumer Price Index will probably soon hit 4 per cent — twice the Bank of England’s target. It has missed this target for four of the last five years. When he fails this spectacularly, King is obliged to write a letter to the Chancellor giving his reasons. But it is perhaps time that someone wrote to him — to explain the basic forces making life so painfully and increasingly expensive for the British public.

It is not difficult to understand. The British government may be in dire financial straits, but the British economy is making steady progress. Manufacturing is growing at its fastest rate in 16 years. Other countries have seen similar trends: Germany is celebrating its strongest growth for nearly two decades; China is buying twice as many British products as it was three years ago. Global growth raises the price of oil, cotton, wheat and metals — and that re-ignites the problem of inflation.