Inflation

Thursday

Fraser Nelson

Scouring the Budget small print

This morning’s newspapers have a feast of analysis on the Budget. I’ve covered 15 of them, and what journalists normally do is spend the day trawling the small print of the Budget document hunting for stories. But this time, the stories seem to have migrated to the Office for Budget Responsibility’s accompanying report, packed with new analyses and metrics — even disaster scenarios — which those with an interest in UK economics will find useful. The OBR document is now released with the Red Book, and speaks with the authority of government economists who (unlike the rest of us) have had weeks to chew over Osborne’s claims. The OBR must

Wednesday

Mark Littlewood

Osborne made a start on deregulation, but there’s a long way to go

This was always going to be a rather modest budget. Having set out the Comprehensive Spending Review last year, the government had already decided its broad plan; we were never going to see much more than some minor tinkering. Nevertheless, as a budget billed as a serious driver for growth, it is a disappointment. George Osborne seems to have a reasonable understanding of the problems that need tackling, but he seems shy of solutions. Concerned about the regulatory burden on business and enterprise, the Chancellor announced that he would reduce the cost of compliance by £350m. But, even on his own figures, this is a tiny slice of the £90bn

James Plunkett

Osborne the Reformer is an unfinished work

One interesting aspect of today’s Budget is the government’s change of tack on personal allowances. Back in June 2010, when the Chancellor committed to raise allowances from £6,475 to £7,475, he chose to cancel out the gains for higher rate taxpayers by lowering the level at which the 40p tax rate kicks in. The idea was to focus the gains of the policy on basic rate taxpayers, making things a little more efficient. The 40p threshold will therefore be lowered from April this year from £43,875 to £42,475 with the result that 700,000 people will become higher rate taxpayers. Needless to say, that’s proved unpopular, and so this time around

Peter Hoskin

The big question: has Osborne done enough to deal with inflation?

“We understand how difficult it is for so many people across our country right now.” If you weren’t sure which direction George Osborne’s Budget was going to head in, then he clarified it right from the start of his speech. This was one to tackle the rising cost of living. And much of it — such as the raise in the personal allowance and the fuel duty cut — was welcome. But there is a nagging question hovering above Osborne’s announcement today: has he done enough? The Chancellor will certainly hope so. After all, by scrapping the fuel duty escalator he has effectively encoded a tax cut into all of

Tuesday

Peter Young

Confiscation through inflation

Inflation has now reached its highest level for 20 years, today’s figures reveal. But we will suffer not just because of the increased cost of living, but also because the government will penalise us by taxing our illusory gains. The Adam Smith Institute has calculated that about half of the £3.3 billion that the government plans to raise through capital gains tax (CGT) next year (2011-12) will come from taxing purely inflationary gains.   “Fairness” is said to be an attribute of the coalition’s fiscal policy. But it is difficult to see how this can be seen as anything other than extremely unfair. The main CGT rate was raised from

Matthew Whittaker

Spiralling inflation continues to squeeze some more than others

The February inflation figures spell more bad news for living standards in the UK. With average weekly earnings growth standing at just 2.2 per cent, millions of workers continue to get poorer in real terms. However, differences in the make-up of typical “shopping baskets” mean that the spending implications of inflation vary by income group. Since 2007, inflation has been driven primarily by increases in food and fuel prices. Given that such staples account for a larger share of weekly expenditure among lower income households than among higher income ones, the impact is felt more acutely in the lower half of the income distribution. The below chart details the impact

Fraser Nelson Fraser Nelson

Inflationary troubles ahead of Osborne’s Budget

Unwelcome news for George Osborne: he will tomorrow present his Budget against a backdrop of the highest inflation for 20 years. The RPI index — what the nation called “inflation” until Brown changed the definition — is 5.5 per cent. It hasn’t been this bad since the aftermath of the ERM crisis, an unhappy comparison for the Tories. The CPI index is up to 4.4 per. And those who deploy the usual arguments about global food prices are spiking might wonder: why is Britain now even worse off than Greece?     Even the Zimbabwean media is laughing at us (their inflation is now considerably lower than ours). It’s shocking,

Thursday

Fraser Nelson

Our monetary policy needs sorting — and quick

Today’s decision to leave base rates at an emergency 0.5 per cent — the lowest since the Bank of England was founded in 1694 — shows how Britain is running out of options. Not even Mervyn King would deny that Britain has an inflation problem: global prices may be up, but the UK seems to have been hit worse than almost any major economy, as I blogged yesterday. With food prices up by 6.3 per cent and CPI inflation by 4.1 per cent, what’s happening to prices? The below graph, again out today from a FTSE350 survey, suggests that pay is up by just 0.5 per cent in the private

Wednesday

Fraser Nelson

Labour’s inflation pitch

Curiouser and curiouser. We in Coffee House have been saying for some time now that – whatever Mervyn King thinks – Britain has the worst inflation in the Western World apart from Greece. An OECD report out today shows we’ve got it worse than most eastern countries too. Korea, Turkey and Estonia are the only eastern nations with higher inflation: But what strikes me most about today is that food prices are soaring here, to an extent far worse than the rest of the world. This is what voters notice most: putting food on the table is very expensive. As Micawber might put it: annual food price inflation 6.3 per

Sunday

Fraser Nelson

Why Ed Miliband’s getting it right on the cost of living

George Osborne’s budget, due in two weeks’ time, will be billed as an agenda for growth. This is welcome, but a year late. The burning agenda now is the cost of living. It was our cover story for The Spectator last October: why fret about mild 1 percent-a-year cuts, we asked, when the real killer will be prices? Petrol at 130p a litre is only the most visible sign of this. Other horrors confront shoppers in the supermarket – salmon fillets up by a third, potatoes and butter by a quarter. When Alan Duncan speculated that petrol could hit 200p, he was on the right scent. While the BBC is

Tuesday

Peter Hoskin

Osborne goes on the offensive

Attack, attack, attack. That’s the temper of George Osborne’s article for the Guardian this morning, which sets about Labour’s economic credibility with a ferocious sort of glee. Perhaps the best passage is where he asks how many times Labour can spend their ubiquitous “bank tax,” but this is more pertinent to the recent debate: “Where does all this leave Ed Miliband’s newfound enthusiasm for the “squeezed middle”? Let’s pass over his failure in every interview to define it – his last effort included around 90% of taxpayers. Where we can all agree is that these are difficult times for family incomes. There are two root causes. One is global: rises

Monday

Peter Hoskin

Miliband’s latest break with the past

As an independent creature, the Resolution Foundation’s new Commission on Living Standards isn’t doing Ed Miliband’s work for him. But, boy, must the Labour leader be glad that they exist. At their launch event this morning, the “squeezed middle” – aka low-to-middle earners – suddenly took shape. There were graphs, such as those in James Plunkett’s post for us earlier, setting out the very real problems facing a segment of British society. And there were even definitions explaining what that segment is: 11 million adults, by the Resolution Foundation’s count, too rich to benefit from measures for the least well-off, and too poor to be entirely comfortable. This was a

James Plunkett

Three charts that complicate a simple focus on growth

GDP growth figures have become the barometer of choice for commentators trying to tell the political weather – a good measure of how the public will eventually fall in the faceoff between Osborne and Balls. The story goes that a return to sustained growth will mean a return to rising living standards.  That means a vindication of the government’s position, and a victory for the Chancellor. As a simple story, that makes sense if the pressures now facing Britain’s households are straightforwardly growth-related – if, in other words, we’re in a post-recession hangover that will vanish when growth returns. But there’s now mounting evidence of a deeper problem for living

Peter Hoskin

Will Cameron have a Brown moment over petrol?

Remember when Gordon Brown came up against Fern Britton in a TV interview? I’ve pasted the video above to remind CoffeeHousers of two persistent truths: how tricky a subject petrol costs can be for a serving Prime Minister (watch on from around the 0:50 mark), and how Labour are hardly blameless when it comes to the current cost of fuel. As Britton asks in the interview, “How much tax do you put on the fuel?” And the answer that Brown mumbled to avoid, from a House of Commons briefing note at the time, was this: In other words, for a huge portion of the New Labour years, fuel duty accounted

Sunday

Peter Hoskin

Labour sets about warning of a “cost of living crisis”

Ed Balls has been warming up to this one for a while, and now it has finally come: an all-out attack over rising prices. In an interview with the Sunday Times (£), the shadow chancellor warns of Britain’s “cost of living crisis,” and demands that George Osborne reverse the VAT increase. Much of his pleading is made on behalf of motorists, who – as I pointed out a couple of days ago – face punishment at the petrol pumps. He doesn’t even mention spending cuts once, especially not where his own party’s are concerned. Rising costs, clearly, are the new weapon of choice. And it’s not just Balls. Ed Miliband

Friday

Fraser Nelson

Inflation: how the nightmare will continue

Each month, inflation numbers come out and seem to surprise everyone – except the chosen few who have access to the forecasts. So I thought we’d share with CoffeeHousers what is all too seldom put on public record: forecasts for inflation and base interest rates. It might be useful to anyone thinking of taking out a fixed rate mortgage deal. These forecasts are from Michael Saunders at CitiGroup, whom I regard as one of the best in the business. Pretty much every analyst thinks that interest rates will soon start a relentless march back to 5 per cent, so these 3 per cent fixed rate deals we’re getting right now

Peter Hoskin

What price a fuel duty stabiliser?

Last we heard, the government was considering what it should, and could, do to suppress rising fuel prices. I wonder whether they have now pencilled something into March’s Red Book. You see, after a swell of speculative fear triggered by events in the Middle East, the cost of oil is going up, up, up. Brent Crude touched $120 a barrel yesterday, the highest price since August 2008, although it eventually settled to around $111. Some observers predict it will soon exceed the previous record price of $150. Naturally, this threatens to unstitch the delicate fabric of the global economy – drastically rising oil prices could bring pervasive stagflation in their

Tuesday

Fraser Nelson

Why we need a rate rise

Now that today’s inflation figures are up, to a predictable and predicted 4.0 percent on CPI and 5.2 percent on RPI, we can expect the usual response. Nothing from the government (even though the declining standard of living will eclipse cuts as the no.1 problem of 2011); plenty of shocked news stories; and, then, the round of commentators saying that Mervyn King should “hold his nerve,” and not increase the absurdly low base rates of 0.5 percent. Inflation is temporary, he says, and should be okay again this time next year (that’s what he said about the start of 2011). The Spectator does not have much company in finding fault

James Forsyth James Forsyth

Inflation up again

CPI inflation running at four percent, twice the bank’s target level is a problem for the Bank of England’s Monetary Policy Committee which remains set against a rate increase. I suspect we’ll hear much about how this rise is partly prompted by the one off effects of the VAT rise and the role of global commodity prices in driving inflation. But it is hard to get away from the fact that inflation has been above the two percent target rate for 14 months now. (Personally, I’d favour the scrapping of inflation targeting). The most immediate political consequence of this inflation is that it is hitting living standards. Wages are not rising

Monday

Fraser Nelson

King’s credibility is faltering

We at The Spectator have not had much company in criticising Mervyn King for the failure of his monetary policy. The Bank of England governor has a status like the Speaker used to: someone whose position must command respect, otherwise the system collapses. And yet there are Octopuses with a better track record in inflation forecasting. People have been repeating that the Bank’s independence is a great success for so long that it has become a truism. Why? We’ve just had a huge crash, the result of a credit bubble – fuelled by dangerously low lending rates. And the recipe for restoration? Even cheaper debt, with resurgent inflation. The British