The ONS data release this morning is a timely reminder that the spectre of runaway inflation is still a threat to the economy. In August the CPI jumped to 3.2 per cent, from 2 per cent the month before, the biggest monthly increase since records began in 1997. Radio 4 ran the story this morning and it's creating quite a stir on Twitter.
An extract from the ONS data says:
"The Consumer Prices Index (CPI) rose by 3.2% in the 12 months to August 2021, up from 2.0% in July: the increase of 1.2 percentage points is the largest ever recorded increase in the CPI National Statistic 12-month inflation rate series, which began in January 1997; this is likely to be a temporary change."
Mmmmm. Temporary? Let us all hope it is. And another factor is that inflation fell in August 2020:
"On a monthly basis, CPI increased 0.7% in August 2021, compared with a fall of 0.4% in August 2020."
Nevertheless, 0.7% is still a big increase.
The ONS also say that the largest upward contribution to the August 2021 CPIH (CPI + Housing) 12-month inflation rate came from transport (0.87 percentage points) with further large upward contributions from restaurants and hotels (0.65 percentage points), housing and household services (0.65 percentage points), and recreation and culture (0.28 percentage points).
They may be short term and transitory but Andrew Bailey, governor of the Bank of England, talked last week of inflation reaching 4 per cent by the end of the year. It may already be close to that now. Personally, I don't see why inflationary pressures will suddenly die away next year. The shortage of worker is going to drive up wages and off we will go.
On the jobs front the economy is doing better than I and many others expected after Brexit and the pandemic. The BBC were reporting last night that job vacancies had reached a record high of just over one million. This is good news for anyone seeking work. The BBC also reported the number of people in work had reached. 29.1 million, with the implication that this also is at a record high.
The truth is slightly different. I looked at the government’s own figures for 2019, the last complete normal(ish) year we have. Two years ago there were 32.81 million in employment. That means about 10 per cent of the workforce is missing so the shortages may persist for a long time.
I have often posted on this blog about inflation and the worry that it might begin to take off again as it did in the sixties and seventies. We have a huge debt, around £2 trillion, which is still rising but manageable - as long as interest rates are low.
Inflation is a function of too much money chasing too few goods and services and governments usually resort to interest rates to curb the money supply. If does get out of control, it's a useful way of inflating away the debt so it essentially becomes worth less and less over a relatively short time, but at the cost of raising debt repayments.
Britain has quite a lot of long term debt, money raised by the debt management office and not repayable for 10-15 years. But earlier debts are constantly coming up to be repaid and will need to be replaced by debt at higher rates. The amount of debt interest payable will inevitably rise and reduce the funds available for infrastructure of pubic services.
