Britain hasn’t known price inflation on this scale for decades, so it is as unfamiliar a first-hand experience to today’s politicians and officials as, say, early punk rock, Crackerjack or affordable housing for the young.
The political lessons from history seem to be twofold. First, and a bit obvious, inflation is politically pernicious. It is usually a symptom of an economy operating behind its productive potential, either because demand is too high (the usual case) or possibly because of vast monetary expansion, or the cost base and inefficiency of the economy makes growth problematic, or because of some external event – deprecation of sterling, an oil crisis or a war.
At the moment, elements of all these traditional sources of inflation seem to be in evidence, but the main short-term answer is the same – a monetary and/or fiscal squeeze on the economy. This means lower public spending than planned, taxes higher than desirable, restraint on public sector wages, and interest rates climbing inexorably higher. As a combination, it hurts and creates people who find themselves worse off, absolutely or relatively, through no fault of their own.
