With every fare rise and fee increase, the government decides to defy the inflation hawks

This year and next, a full 0.6pp of inflation will be because of direct government decisions.

Last week, I wrote about how inflation is worst for those who spend a large proportion of their income on essentials. The cost of essentials, defined as food, housing, energy and travel, increased by 3.7 per cent last year, well above CPI's 2.8 per cent increase. Since the recession, essentials have increased in price by more than 33 per cent, while nominal incomes have gone up by just 10 per cent.

A large driver of that increase, however, is the direct effect of government policy. For instance, council tax, road tax and almost all public transport fares are set by the state, as are most of the costs of highly-taxed goods like alcohol, tobacco, fuel and heating and power.

Now, the weekly briefing note produced by Deloitte's Chief Economist, Ian Stewart, makes clear that a similar effect is happening to the headline rate of inflation. Stewart writes:

In its latest Inflation Report, the Bank noted that one of the reasons behind persistently high inflation was higher 'administered and regulated prices', i.e., prices affected by government or regulatory decisions. Of these, a key contributor has been the rising price of education, largely reflecting rises in undergraduate tuition fees. Another contributor is higher domestic energy prices as a result of current climate change and energy policies and further investment into the UK's gas and electricity distribution networks.

According to the Bank, these two drivers have, together, amplified UK inflation by 0.4 percentage points last year and will do so by 0.6 percentage points this year and the next.

The latter reason is something you hear a lot about from inflation hawks, given the frequent coincidence of climate scepticism and fear of inflation; the former, not so much. When it comes down to it, one way to keep inflation low would be to fund essential public services through general taxation or deficit spending, neither of which tend to be routes advocated by inflation hawks.

Stewart also pokes the Bank of England about whether or not it is strictly applying its mandate. Technically, the Bank has only one role: to keep inflation as close to its 2 percentage points target as possible, and certainly within one percentage point either side. But instead, under both Mervyn King and, it is expected, Mark Carney, the bank has refused to take actions to bring down inflation if they would harm growth. Stewart writes:

This approach has led some analysts to point out that the Bank now seems to place greater emphasis on growth than on its explicit inflation target. It is not just that, in the words of the Bank's governor Sir Mervyn King "policy is exceptionally accommodative to growth". A debate is underway as to whether the Bank of England, and indeed other central banks, should run even easier monetary policy, possibly risking higher inflation in the long term, in order to bolster growth. In December, the US Fed set itself an additional target of bringing down the US unemployment rate to below 6.5%, before it considers raising interest rates.

Mark Carney, the next governor of the Bank of England, has recently said that central banks should consider radical measures, including commitments to keep interest rates on hold for extended periods of time or scrapping inflation targets, to boost growth.

Needless to say, the fact that the Bank of England is not crushing our already anaemic growth to bring inflation down from around 3 per cent to around 2 per cent is a feature, not a bug, in the system. Regardless of what the inflation target actually is, the fact that the Bank tends to be run by extraordinarily talented individuals who are working for the financial health of the country means that they are prepared to make sensible decisions even if they aren't necessarily the prescribed ones. But the choices raise further questions about whether the monolithic inflation target is the right way to run a central bank in the 21st century.

A hawk. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Getty
Show Hide image

Commons Confidential: Dave's picnic with Dacre

Revenge is a dish best served cold from a wicker hamper.

Sulking David Cameron can’t forgive the Daily Mail editor, Paul Dacre, for his role in his downfall. The unrelenting hostility of the self-appointed voice of Middle England to the Remain cause felt pivotal to the defeat. So, what a glorious coincidence it was that they found themselves picnicking a couple of motors apart before England beat Scotland at Twickenham. My snout recalled Cameron studiously peering in the opposite direction. On Dacre’s face was the smile of an assassin. Revenge is a dish best served cold from a wicker hamper.

The good news is that since Jeremy Corbyn let Theresa May off the Budget hook at Prime Minister’s Questions, most of his MPs no longer hate him. The bad news is that many now openly express their pity. It is whispered that Corbyn’s office made it clear that he didn’t wish to sit next to Tony Blair at the unveiling of the Iraq and Afghanistan war memorial in London. His desire for distance was probably reciprocated, as Comrade Corbyn wanted Brigadier Blair to be charged with war crimes. Fighting old battles is easier than beating the Tories.

Brexit is a ticket to travel. The Independent Parliamentary Standards Authority is lifting its three-trip cap on funded journeys to Europe for MPs. The idea of paying for as many cross-Channel visits as a politician can enjoy reminds me of Denis MacShane. Under the old limits, he ended up in the clink for fiddling accounts to fund his Continental missionary work. If the new rule was applied retrospectively, perhaps the former Labour minister should be entitled to get his seat back and compensation?

The word in Ukip is that Paul Nuttall, OBE VC KG – the ridiculed former Premier League professional footballer and England 1966 World Cup winner – has cold feet after his Stoke mauling about standing in a by-election in Leigh (assuming that Andy Burnham is elected mayor of Greater Manchester in May). The electorate already knows his Walter Mitty act too well.

A senior Labour MP, who demanded anonymity, revealed that she had received a letter after Leicester’s Keith Vaz paid men to entertain him. Vaz had posed as Jim the washing machine man. Why, asked the complainant, wasn’t this second job listed in the register of members’ interests? She’s avoiding writing a reply.

Years ago, this column unearthed and ridiculed the early journalism of George Osborne, who must be the least qualified newspaper editor in history. The cabinet lackey Ben “Selwyn” Gummer’s feeble intervention in the Osborne debate has put him on our radar. We are now watching him and will be reporting back. My snouts are already unearthing interesting information.

Kevin Maguire is the associate editor (politics) of the Daily Mirror

Kevin Maguire is Associate Editor (Politics) on the Daily Mirror and author of our Commons Confidential column on the high politics and low life in Westminster. An award-winning journalist, he is in frequent demand on television and radio and co-authored a book on great parliamentary scandals. He was formerly Chief Reporter on the Guardian and Labour Correspondent on the Daily Telegraph.

This article first appeared in the 23 March 2017 issue of the New Statesman, Trump's permanent revolution