Andrew Neil: Inflation at most dangerous point in decades
If inflation hits 4% the average household would be £700 a year worse off
Inflation doubled in April and grew again in May. It’s now growing at its fastest rate since before the financial crisis 13 years ago. Of course, at just over 2% it’s nowhere near the staggering 25% it reached in 1975. Or even the 8% of 1990. But it’s now above the Bank of England’s target and forecast to rise further.
It’s even higher in America — at 5% — as President Biden pumps up the economy on an unprecedented scale. And America has a habit of exporting its inflation.
Electricity and gas bills jumped over 9% in April.
Broadband and rail tickets are rising too.
Worldwide, basic food prices are growing at their fastest rate for over a decade. That’s yet to be reflected in our supermarkets. But it could be only a matter of time.
Fuel prices are up 18% on a year ago and manufacturers are paying 10% more for stuff they need. That will eventually find its way into higher prices for us.
If inflation hits 4% the average household would be £700 a year worse off.
The official line is — don’t worry. These price rises are temporary, caused by one-off reasons and that they will soon settle back down again. That’s the view of the Bank of England, the US Federal Reserve and just about every other major central bank.
And they could be right. Most economies are recovering fast from the pandemic, supply chains are stretched, and shortages are pushing up prices. By this time next year inflation could be back under control.
But if all these central bankers are wrong the consequences would be severe. The Bank would have to raise interest rates to stop inflation getting out of control. That would cost the government a lot more in interest payments, since it has £2 trillion in outstanding debt. But households have a ton of debt too and they’d also feel the pinch.
And higher rates will slow economic growth.
Last week on this programme the Chancellor told me he didn’t really have a view on inflation. That’s the responsibility of the Bank of England. But if inflation returns with a vengeance that’s not a position he can sustain. And, as the outgoing chief economist of the Bank says, when it comes to inflation, we’re at our “most dangerous moment” in three decades.
And that’s tonight Viewpoint