Our Retail Prices Index (RPI) stands at 4.8 % and the index the Bank of England targets – called the Consumer Price Index stands at 3.1 %. They are higher than the targeted indices of any of our G7 competitors. Almost double the next one down the list.
France 1.7 %
Germany 1.2 %
Italy 1. 0 %
Canada 1.0% (June figure)
Japan -0.7 % ( June figure)
This report was originally just intended to keep the fact that this country has usually got the highest inflation figure in the G7, despite us having inflation indices that understate inflation, in the minds of various people we are lobbying. But we now use it to outline how our ideas about inflation are developing. As such we hope it is more interesting than the Bank of England’s quarterly Inflation Report, which concentrates on optimistic predictions that are almost always wrong in recent years.
We have consistently warned that food and energy prices are straining living standards across the world. Of course food is of far less weight than in the inflation baskets of the developed world than it was in the past , or than it is the developing world. It averages about 40% in some of the most populous Islamic countries, like Pakistan and Egypt for example, where social instability could have global consequences.
So although the fires and floods that are becoming a regular summer occurrence on the Europe-Asia landmass put pressure on our standard of living, it is many times more serious elsewhere.
For example, Russia has again banned wheat exports which is already driving prices up outside that country. Stopping farmers exporting is one of the world’s traditional ways of holding down prices in producer countries’ home markets.
Rather than inflation in the UK being the result of a series of one-off occurances as Mervyn King insists, perhaps we are heading for a new world-wide era of Austerity. With inflation rather than deflation being the main global issue. What we have been promoting as our Regional Prosperity and Inflation Framework, might well have to serve as an ‘Austerity & Inflation’ Framework.
We have also recently published our outline of what an inflation index for our home region would actually tell us.
Using the most authoritative housing affordability figures for the regions – produced by the Halifax – we can see how housing prices, which should have weight in any proper inflation indices, demonstrate how a clear ‘Two Income Trap’ emerged under New Labour. It seems it now takes 2 incomes to buy a home that could be bought on one income when New Labour came to power. This fits with our long standing argument that two incomes are now required to run a household that could be run on one income a generation ago. But interestingly, the movement in house prices occurred as early as the Lawson boom of the late 1980s as far as the West Midlands is concerned. But real house prices fell back under John Major, before becoming the national phenomenon since. This is explained further on this project’s main webpage and it can also be accessed here.
This erosion in real wages did not help manufacturing jobs survive in the West Midlands, even in the later years of the Thatcher government. Had Nigel Lawson had an authoritative index for inflation in regions like ours, perhaps he would have heeded the warning it would have been sounding – and have restrained his inflationary boom before it became a national disaster. Labour would not then have slid down the same slipway. But that would have been a very different Britain, which might today have more manufacturing and less household debt than it has actually come to have.
We have recently set out a path for reform to the Statistics Authority’s review of inflation, and we are grateful to the Trust that has regularly supported us in this area of work in recent years – The Andrew Wainwright Reform Trust.
Our report last month challenged the notion that we have been struggling with a global deflation in any way comparable to the 1930s and can be found here.
LWM Regional Prosperity & Inflation Project