Inflation

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

Since the spring statement last week, Rishi Sunak has been dealing with complaints from all sides: the right have been arguing he should have been bolder with tax cuts, the left insists more support is needed to help people with the rising costs.  With the Office for Budget Responsibility projecting the biggest fall in living standards since records began, rumours of U-turns and further announcements started bubbling over the weekend. The media, the opposition, and even some Tory MPs have been asking Treasury representatives over and over again: is that all? In a keynote address hosted by the Institute of Economic Affairs this morning, chief secretary to the Treasury Simon

The return of inflation has changed politics, I say in the Times today . Until recently, it was possible to argue that the government should borrow to slashes taxes, or to cover almost any additional spending. It was so cheap to do so that it was almost rude not to, the argument went. Inflation was also dismissed as a dog that hadn’t barked since the early 1990s. Johnson was relaxed, while last September Liz Truss thought that – if necessary – borrowing would be a better way to pay for the government’s social care policy than raising National Insurance. But debt payments are now expected to quadruple. They will absorb an extra £96 billion between

There was a time when a chancellor would have bitten off the hand of a national statistician who offered him an inflation rate of 6.2 per cent. But that takes us back to the days of Denis Healey and the early months of Geoffrey Howe’s time in Number 11. There is little disguising this morning’s grim news, however. The last time the Consumer Prices Index (CPI) was at 6.2 per cent was in March 1992 – although at that time the index was little used as the government’s preferred measure of inflation was then the Retail Prices Index (RPI). The worst thing about today’s figure is that it doesn’t even

The Bank of England has voted to hike interest rates to 0.75 per cent, the third successive rise, which puts rates back to their pre-pandemic levels. Historically, we’re still at ultra low levels, but the rise is anything but insignificant. After the Federal Reserve made its first move to lift interest rates by 0.25 per cent (its first rise since 2018), it was all but guaranteed that the Bank would vote to lift interest rates again. The Fed had been holding out longer than most, with CPI in the United States hitting nearly 8 per cent, a 40-year high, before it took action. But the narrative that price hikes are

This morning’s revelation that the UK economy grew 0.8 per cent in January, the fastest growth since April last year, is welcome news after a Christmas plagued by Omicron – but it’s news that’s out of date, too. As Capital Economics warns: ‘This is as good as it gets for the year’. Russia’s invasion of Ukraine, the commodity price jump and the cost-of-living crisis will soon show in the figures. Today’s ONS release warns that even in January, businesses were already reporting significant rises in the cost of energy and staff wages. The week after next, Rishi Sunak will present a mini-Budget. The Chancellor faces a conundrum: how to explain the inflation and

The way we measure inflation is changing, and there could hardly be a less crucial time for it to do so. The ONS will be updating the method for collecting individual prices from supermarkets, and will also publish new figures on inflation rates for different types of household. The anti-poverty campaigner Jack Monroe has tweeted that the ONS ‘have just announced that they are going to be changing the way they collect and report on the cost of food prices and inflation to take into consideration a wider range of income levels and household circumstances’. But Monroe, who hope that the new metrics will show that inflation is hitting poorer families harder, will

If Boris Johnson manages to cling on to his job, he’ll have much more than the parties of lockdowns past to worry about. Britain’s cost of living crisis is worsening still, with CPI inflation rising by 5.4 per cent in the 12 months leading up to December last year. This has, once again, outpaced consensus, surging even further past the Bank of England’s most recent official forecast. There’s little doubt left that heavy government spending is playing a significant role in the inflation we’re experiencing now Inflation is now at a 30-year high. And it’s still rising. Capital Economics now estimates a peak of 7 per cent around April, and there

Yet again, inflation has surged past expectations – this time hitting 5.1 per cent in November, a ten-year high, up from 4.2 per cent in October. This threatens a political crisis as well as tough economic times: unless inflation is quelled, next year will be one of declining living standards for most people. Anyone whose pay is not rising by at least five per cent will, in effect, feel like they’ve experienced a pay cut. It was assumed that five per cent would be about as high as inflation would go but all this is proving hard to predict. This has gone past the Bank of England’s peak forecast, which

Inflation is back, and while some people continue to cling to the idea that its resurgence is a temporary phenomenon, today’s figures further stamp out that optimism. Consumer inflation was up to 4.2 per cent in the year to October, a surge from just over 3 per cent the month before. This takes inflation to its highest level since 2011, with prices only set to rise further heading into 2022. Why has the Bank been so insistent about the temporary nature of this round of inflation? Much of the rise is due to increasing energy costs, which were always expected to worsen this winter: global shortages continue to bite as the

The big central banks have been insisting for months now that the rise in inflation is temporary, and will fade once the great awakening of the world economy starts to settle down. The Federal Reserve, Bank of England and the European Central Bank have looked on as inflation has overshot their forecasts. But when the opportunity to tame it with an interest rate hike approaches, the banks pass it up, reiterating instead that it is ‘transitory’ — the monetary equivalent of ‘it’ll be fine’. With inflation now at a 30-year high in the United States — 6.2 per cent — it’s starting to look like a pretty big bump. But should

I have a horrible feeling that the Biden presidency may come to be defined by a single quote which will echo down the ages, featuring not just in economics textbooks but becoming a byword for hubris of all kinds. Speaking of his $1.75 trillion ‘Build Back Better’ plan, the President declared last week: ‘Seventeen Nobel prizewinners in economics have said that my plan will ease inflationary pressures’. Not so fast, Mr Biden. Today, the Bureau of Labor Statistics announced that the Consumer Prices Index (CPI) for October rose to 6.2 percent, higher than expected and the highest rate since 1990, the very beginning of the low inflationary era. For all

Last week, the Bank of England sent a number of confused messages. One was almost shocking: Andrew Bailey said that it isn’t his job to steer markets on interest rates ‘day by day and week by week’. But as economic commentator Matthew C. Klein dryly noted this is literally his job. It is debatable whether the Bank of England needs to manage the entire yield curve (ie, buying and selling bonds in an attempt to set interest rates years into the future) but the central bank should be in charge of the short end. Those opposing an interest rate rise say that central banks should never shock markets. The Bank

He isn’t Canadian. He doesn’t dominate the Davos circuit with platitudes about climate change. And he isn’t constantly warning that the British economy will turn into a cross between Ethiopia and Argentina now that we have left the European Union. In many ways, the current Governor of the Bank of England Andrew Bailey is an upgrade on his high-profile predecessor Mark Carney. And yet, in the most important respect, he is turning out to be very similar. He is constantly threatening to raise interest rates, and then backing off at the last moment.  An increase in interest rate from the ‘emergency’ level of just 0.1 per cent was not quite