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this post was submitted on 21 Jun 2023
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UK Politics
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General Discussion for politics in the UK.
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Does anyone know why our inflation rate is staying so persistently high? Other peer countries seem to be improving and we're getting worse and worse.
Unpopular to say but factors include government choices like increased minimum wage and pensions, tax hike reversals (NI), tax cuts on business investment, inequality in how pandemic funds benefitted different groups leaving some with large excess savings and lower debt than would otherwise be expected.
And of course as ever the impact of Brexit on goods and workers.
It would be beneficial if the government took actual actions to help deal with inflation that went beyond things that they naturally want to do (like not negotiating with striking workers). But they are content with letting BoE use the single tool in their toolbox which will unfortunately impact some groups much harder than is actually needed to have the desired impact across the whole population as they can stand away from it and say it was BoE that did it.
To say NI and pensions is part of the issue causing inflation is ludicrous. What we have is an extra cost for imports as well as a supply issue. Add in the price gouging cost. Economist have been saying this for over a year now.
All of this will be even more visible when the import checks come into force in October. If the EU imposes biometric checks also, god only know what will happen.
Raising interest will put unnecessary pressure on already struggling companies, which will result in job losses. Rents will increase as landlords will take advantage as much as possible. Presently 81,000 homes are in arrears with their payments, that is a third of all mortgages. Predictions are for that figure to be 140,000 at the end of next year.
During periods of inflation reducing or deincentivising spending are the ways to reduce demand. Inflation in restaurants and recreation, air fares are not down to these factors that you list, they are down to there being more demand due to some groups of people having more money after building up savings and paying off debt in the pandemic when they couldn’t do these things. The way to reduce demand for these things are additional taxes on groups that are spending on them now.
Two of the most inflated costs are food and energy. Essentials that demand cannot be reduced beyond a certain point without people dying.
Food is a consequence of Brexit and the increasing cost of importing, energy is a consequence of all energy prices being artificially high due to the price of gas.
There are ways to fix both of those, but they aren't popular with Tories.
Core inflation strips out food and energy and is going up in the Uk and down pretty much everywhere else.
I honestly feel like a bit of it is prices hadn't moved on a lot of things for a while (for various reasons), and industries took this as a chance to hike things beyond what was actually necessary.
Plus us being an island nation that recently ripped up lots of our agreements, that won't have helped.
Yeah, externalities create opportunities for coordinated price behaviour. It's implicit price fixing in a way that would be illegally anti-competitive if made explicit. The CEO of EE/tesco/next or whoever can just go "due to input costs we are forced to pass on price increases to consumers" and all their peer companies can safely bump up prices, knowing that they aren't going to undercut them on price. The companies all get higher margins and the consumer gets screwed. Without the externality they'd have no idea about the pricing strategy of peers and would have to price competitively to retain or grown market share.
Because less money for you means more money for them.