The mugger’s accomplice

‘Inflation,’ Ronald Reagan declared, ‘is as violent as a mugger.’ In response, the world pursued zero-tolerance policies for two decades, to the point at which politicians and central bankers began to believe they had actually eradicated the menace. When Gordon Brown used to boast that there would be ‘no more boom and bust’, he was relying in large part on a belief that inflation had been permanently defeated by monetary and fiscal prudence combined with globalised trade.

But now we know that inflation is on the loose again, and all the more frightening for being unfamiliar. The Consumer Price Index (CPI) stands at 3.8 per cent, a 16-year high and almost double the Bank of England’s target. And the CPI itself (which excludes housing costs, and includes in its basket a selection of consumer goods that no one needs to buy every week) is now exposed as a wholly inadequate indicator of the real rate at which household bills are rising. One former chancellor, Sir John Major, said this week that ‘inflation is probably between 8 and 10 per cent’. The British Retail Consortium puts food price inflation at 7 per cent, while a survey of supermarket products this week put the figure as high as 21 per cent. Fuel costs are up by more than 30 per cent, and sure to rise further.

Until recently, it was the middle classes who complained, across lavish dinner tables, that service-sector inflation was hitting them far harder than general inflation for the mass of shoppers. That situation has reversed: the poorer the household, the higher the proportion of income that is spent on expensive necessities, and the smaller the balance left for discretionary bargains: the poorer you are, the higher your personal rate of inflation.