Thursday 20 April 2023

Halving Inflation

I'd like someone, anyone, to ask Rishi Sunak how the hell he's going to halve inflation by the end of the year. By that, I mean what policy will he enact that will have a direct effect on inflation?


The current round of inflation is not caused by the classical 'too much money floating around in the economy' - quite the reverse, there ain't enough money around for many to buy the essentials that have gone up in price. The cause of this is primarily the Ukraine War.

It is causing restrictions on the supply side - too little of the imported commodities that we rely on for food, essentially commodity grains and especially wheat. This filters through to animal feeds, leading to meat prices rising.

Fuel prices are also having an effect. Power is now more expensive, which feeds through to all areas of manufacturing.

Ukraine is a large exporter of fertilizers, the price of which has also sky-rocketed.

I can't see how Sunak has any ability whatsoever to affect world gas, oil or commodity prices. Giving public sector workers high pay rises neutralises the effect of inflation, but feeds natural inflation caused by wage spirals, so his hands are tied.

The Bank of England putting up interest rates, which is a knee-jerk reaction, won't have any effect on the aforementioned oil, gas and commodity prices, as they are global prices outside of domestic control, so what they hell they're playing at is a mystery to economists. They will only further feed inflation by also making borrowing more expensive and decreasing domestic economic activity.

Then there's the elephant in the room - Brexit. Brexit drag and bureaucracy is simply making a bad situation even worse for us in the UK, as compared to America and comparable economies in Europe.

So, again, what the hell is Sunak's plan to halve inflation, other than sitting back and waiting for it to happen naturally?

Even halving inflation doesn't get rid of it - it merely means prices will still rise, but less swiftly. The Retail Consortium says it expects prices to come down - when have prices ever come down after inflation?  No one, anywhere, has ever said; "Oh, I'm making too much money - I'd better reduce my prices." Yes, there's a possibility someone may break ranks to gain market share, but it would be short-lived, as everyone would then pile in to retain market share, with profits going down throughout the sector, so there would be no incentive.


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