Inflation

If Mervyn King and his team are trying to deal with Britain’s debt crisis by letting inflation rip, I do wish they would just say so – rather than go through this monthly farce. Yet again, base rates have been left at an absurd 0.5 per cent, in an economy expected to grow by a full 2 percent this year but with inflation at 3.3 percent or 4.8 percent depending on how you measure it. Petrol prices are bad, but now they are matched with soaring prices elsewhere – from train travel to groceries. Here’s a list of some price rises confronting shoppers:   Add Osborne’s VAT rise to non-food

Inflation is one of the most important topics around right how so I thought I’d respond to CoffeeHousers’ comments in a post rather than the original thread. Nick and Gareth Sutcliffe say that inflation is due to global forces (and they’re right insofar as metals, food, etc are all going up). But if the money supply is managed properly, this needn’t push consumer prices too high – most other countries have stable inflation, as the first chart in my post shows: Britain is in Greek territory. My point: the British level of inflation is exceptional. Greenslime suggests price controls – a very bad idea. Even Marx saw this. The prices

Grant Shapps has impressed in the housing brief, arguing that house prices rising faster than wages is not a good thing (with which Policy Exchange’s report, Making Housing Affordable, agreed). He has probably been encouraged by the fact that some recent polls have shown even a majority of owners want prices to stop rising. Perhaps having your kids live with you until they are 40 just isn’t a popular option? More so, rising house prices only benefit those who downsize (now rare) or own multiple properties; and in the wider economy it mostly discourages productive investment and encourages borrowing – hardly good things.   But while Shapps’s aim is laudable,

The Spectator is out today, with a cover story that I would commend to CoffeeHousers. Failure to learn from history usually condemns a nation to repeating its mistakes. That’s why we should be nervous that no one seems to have worked out what caused the crash. Little wonder: the guys doing the analysis are the same guys who failed to spot the crisis building up, so it suits everyone to blame the banks. “How was I to know,” says everyone from Gordon Brown to Joe the Pundit, “that they were doing all these complex debt swap thingies? They deceived everyone, the bounders.” There is another analysis – and it’s our

Déjà-lu is a feeling that Spectator subscribers become familiar with. Part of the reason for subscribing (which you can now do from £12, including free iPad access) is to get ahead of the competition – and read today what the newspapers will be saying tomorrow. We’re delighted that the cover story of Thursday’s edition, by Allister Heath, is the main OpEd slot in the Daily Mail today – and with good reason. All of the focus has been on the cuts, 500,000 jobs to go etc. As CoffeeHousers know, jobs are not expected to be the issue over the next few years: the same forecasts suggest 1.5m jobs will be created.

I hear that the Department of Transport’s settlement is another one that is not as bad as expected. The capital statement is, apparently, positively reasonable. George Osborne’s commitment to infrastructure spending has meant that a good number of transport projects have been saved. On rail fares, I hear they will indeed go up significantly. But not by as much as the doomsday 30 to 40 percent scenario reported in the Sunday papers. Nearly all the settlements we have heard about so far have been less bad than expected. There must be, given that Osborne is sticking to the cuts schedule set out in the budget, some departments that are going

John Redwood has entered the debate with a unique argument: spending isn’t being cut. He points to figures in the Budget which show “current” spending rising from around £600 billion now to around £700 billion in 2015. As Alex says, that suggests an increase of 15 percent over five years – hardly what anyone would describe as a cut. And there’s a similar picture for “total” spending, which will rise from around £670 billion to £737.5 billion.   Yet it’s worth pointing out that Redwood isn’t using inflation-adjusted figures (aka, “real terms” figures). If you do that, then there are cuts to be seen in both current and total spending:

Even governors can be wrong. The Bank of England’s quarterly inflation report is expected to downgrade its original growth forecasts and predict a sharp increase in inflation, albeit one that peaks this year and returns to the target rate by 2012. A spike in inflation is scarcely surprising given the planned VAT rise, and the Bank’s original growth forecasts were, like Alistair Darling’s forecasts, absurdly over optimistic – predicting 3.4 percent growth next year and 3.6 percent the year after. The Bank’s revisions needn’t trouble George Osborne, whose forecasts of 2.3 percent growth next year and 2.8 percent in 2012 were drawn from the OBR. However, the OBR may have

Only a week into his new job, and George Osborne has already had to exchange letters with Mervyn King about inflation.  And here’s why: the CPI index hit 3.7 percent in April, up from 3.4 percent in March.  Which is worrying enough when looked at in isolation – but when put alongside headline rates from other countries, it becomes damning.  In China, it’s 2.8 percent.  In France, 1.9 percent.  In Germany, 1 percent.  In the Eurozone as a whole, 1.5 percent.  And in the US, 2.3 percent (for March, with the latest figures out tomorrow).  Indeed, thanks in part to quantitative easing and the removal of the VAT cut, inflation