Inflation!

‘Absolutely horrendous’? Or absolutely predictable?

The first is an economist quoted by the BBC, on the subject of today’s producer price figures – one element in our rising inflation. The second is, well, me (e.g. here, here) and anyone else with basic numeracy.

In basic commodities (though not yet in manufactured goods, thanks to China), we have regression to the mean: the return of something closer to normality after a period in which prices were artificially low. In the case of food and energy, that’s no mere economic cycle but a generational period. As of now, rising food and energy prices are getting the lions share of the blame. International factors make a good scapegoat when the more important factors are what the late Douglas Adams called Somebody Else’s Problem.

But we’re missing the monetarists’ basic lesson. Printing more money doesn’t create more value, and increasing the money supply will fuel inflation, unless there’s something real and new to spend that extra money on. Pouring billions into subsidised housing, Northern Rock, and now the banking system at large, doesn’t create extra value, so it can only fuel inflation.

And then there’s the housing crash, which has finally begun in spite of yet more government money to prop up prices. Real-world interest rates are rising in spite of the Bank of England, and have a long way to go before they re-align with debt levels (after all, it was Gordon Brown paying off the national debt in the Prudence years that enabled rates to come down from double-digits to their boom-years values).

No government dares not bail out their articulate, well-represented middle classes. So there will be more tax, more downward pressure on the pound, and much more inflation, to help shift the great bulk of the burden from the established powerful but over-borrowed to the hapless hard-working.

Here’s an easy solution, if they’d dare be honest about it. Include house prices in inflation figures. That gives a measure of inflation as it affects those of us who are not so rich as to own property. And the good news is that after years of hyperinflation, it’s finally falling!