On the morning of Tuesday 21 June, the Office for National Statistics decided to bring a little sunshine to our lives with the latest round of inflation figures. Between April and May, thanks largely to increases in the cost of food and non-alcoholic drinks, prices rose at a speed which, if continued, would amount to an annual rate of 9.1 per cent. The most dramatic increases in price were those of staples such as bread, cereals and meat. Alcoholic drinks are rising by quite a lot less, which is good, because after reading the following figures you might need one.
This is the highest inflation has been in over 40 years. During the financial crisis it spiked a couple of times to 5 per cent but quickly dropped again; during the early Nineties, in the period before the UK crashed out of the European exchange rate mechanism, it hit 8 per cent. The last time prices were rising quite this quickly was February 1982, when Rishi Sunak, the Chancellor, was still young enough to be wearing nappies. There’s a joke here somewhere, but I’m far too broke to find it.
The prices of plenty of other things are also merrily reaching for the skies, like S Club 7 with pound signs for eyes. House prices are increasing by nearly 10 per cent a year, which means there’s a decent chance your home currently earns more than you do. If you own, that probably won’t make any difference to your life; if you don’t, though, it’s just made your chances of buying recede yet further. Rents are rising by a more stately 2 per cent (though there is anecdotal evidence that plenty of landlords did not get the memo), and it’s still the fastest rise in over five years all the same.
All of which means that the government’s repeated calls that the general public show restraint when asking for pay rises feel just a little unrealistic. Prices really are going up which means that, all else being equal, living standards will get worse, possibly quite a lot worse. It is thus entirely rational that people try to get pay rises to prevent that. The implication that doing so amounts to a moral weakness is, at best, unhelpful.
After all, as the Financial Times’s Sarah O’Connor recently put it: “I don’t remember anyone telling my mobile provider to show ‘discipline and restraint’ when it told me the price was going up by CPI plus 3.9 per cent.” More than that, nobody is saying the same to landlords, or to pensioners, or to bankers. Pensioners are to be protected; ministers are breezily talking about removing the cap on bankers’ bonuses. Restraint for thee; bonanza for me.
That’s one issue with the government’s attempt to hold the line on inflation by leaning on pay. The other is: pay isn’t the problem. Past bouts of inflation may have been triggered by wage-price spirals, but real wages in Britain have pretty much stagnated for over a decade. Yet still we are in this mess, because of the war in Ukraine, or the energy price shock, or Brexit.
The government doesn’t know how to solve those problems, so it tells you to take yet another cut to your living standards instead. Well, it’s a strategy. Let’s see how it goes down in Wakefield and Tiverton, shall we?