FOR the Millennial generation, inflation (aka rising prices) is something to read about in the history books. Instead, for in the past few decades, we have been living in a period of falling prices – otherwise known as deflation.

Why have prices tended downwards for manufactured items? Answer: China. Thanks to China and Asian manufacturing economies such as Vietnam and Indonesia, any surge in demand for consumer goods in America or Europe is met with an increase in output in Asia. To be blunt, the world has a surplus of manufacturing capacity that puts a lid on shop prices.

Until now that is. Last week, the latest US consumer price index registered a 4.2% annual spike and alarm bells started ringing. You might think 4.2% sounds tiny. But five years at that rate (a typical parliamentary term) and prices will have jumped by nearly a quarter thanks to compounding. If you don’t receive complementary wage rises, you are suddenly going to be a lot poorer.

Matters aren’t as bad in the UK or Europe (yet) but there has been an unusual modest uptick in prices. What is going on? The answer is Covid. The repeated lockdowns have disrupted production while consumer savings have jumped because we’ve not been able to spend. With the lockdown rules disappearing, consumers are spending more but manufacturing production is struggling to keep up. Demand exceeds supply and prices go up – sped on by companies trying to earn a little extra to make up for their losses during the pandemic. Welcome back inflation.

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Of course, this could be a temporary, post-Covid blip before we get back to long-term deflation.

But the financial markets are not sure. Last week, stock markets fell with the first hint of American inflation. Normally, an absence of inflation means low or zero interest rates – the situation for the past decade. In such circumstances, the best place to put your investment cash is in buying company shares.

But the return of inflation will mean rising interest rates. Result: money will flow out of shares and into safe, fixed-interest bonds that cover inflation costs. In other words, the return of inflation could mean the end of the share price boom of the past decade. Lots of folk will lose their shirts.

None of this is good news for a post-Covid economic recovery in Scotland – which has a knock-on impact on the timetable for the next referendum. The Scottish Government won’t hold a referendum till there is post-pandemic “stability”. If it interprets this as full economic recovery, we could be in for a long wait for indyref2. It also raises the thorny question of why we need independence if the Scottish Government thinks it can reboot the economy using existing devolved powers.

Which brings me to the question of unemployment. According to the latest data, around 1.67 million people were unemployed in Scotland between December and February. That’s down 50,000 on the previous quarter but it’s still 311,000 higher than a year ago. Unemployment is concentrated among the young. Folk under 25 account for more than half of the jobs lost in the year to March – around 436,000. The end of the lockdown will bring unemployment down but, with the hospitality industry in tatters, don’t expect any quick return to normality in the labour market.

However, this is the good news. The bad news is that the Scottish labour market has performed well below expectation for the past decade. During his stint as Finance Secretary, John Swinney promised an extra 100,000 jobs in the fast-expanding North Sea renewables industry. Yet few of these jobs transpired. This was because the Scottish Government had limited powers or incentives to hand to ensure offshore wind turbine machinery was manufactured locally. Instead, the jobs went abroad, mostly to Asia or the Gulf.

COULD more have been done to create high-skill, high-paid jobs in Scotland associated with the boom in renewables? The answer is certainly yes. But here a political conundrum emerges.

The SNP government has been unwilling to draw attention to its relative failure to grab a sufficient share of the global renewables employment bonanza. This was because (I presume) it did not want to be castigated for falling down on the job.

However, there was an alternative strategy. The fight over jobs in renewables could have been put at the heart of the referendum campaign. The Scottish Government could have highlighted how devolution constrained its ability to direct energy companies to source locally.

The Scottish Government could have pressured North Sea energy companies by withholding planning permission to bring power lines onshore, though that might have been subject to legal challenge. Alas, the Scottish Government was reluctant to take on the energy multinationals or Westminster and 100,000 jobs were lost.

I don’t raise this to be churlish. But I do worry that the SNP government lacks a coherent or systematic industrial policy. Nor has it been willing to put demands for industrial renewal at the heart of its independence strategy.

True, there’s a lot of talk about a “green new deal”. But even here, the envisaged pace for house building (incorporating better standards of energy conservation) is far too slow either to boost the economy or to hit accelerating global emissions targets. I estimate the Scottish Government would have to up its planned house building by at least 50% to make an appreciable difference.

All this has a knock-on for the referendum debate. The Holyrood election proves the nation is split exactly down the middle on independence. However, there is a constituency of voters who can be won over to Yes if they feel there is a serious plan for dealing with the economy and funding the welfare state people expect of a modern European nation.

We in the indy movement can shout from the rooftops that an independent Scotland would not have a humongous fiscal deficit but sceptical voters want proof there is (or will be) a sufficient tax base in Scotland to support a welfare state.

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Here’s the problem. If you look at the three Celtic nations and English regions outside of Greater London, they all have notional fiscal deficits (of which Scotland’s is not the biggest). This is an optical illusion based on the fact that the bulk of the UK’s tax receipts are booked through London, which therefore has a huge notional surplus. However, this London surplus is the result of big companies, especially in the financial sector, being headquartered in the metropolis.

The problem is this: after Scottish independence, those companies will still be headquartered in London. The indy movement has to prove to sceptical voters that – post-independence – we will have a sufficient industrial and commercial corporate infrastructure paying taxes in Scotland rather than London. Which is why having an industrial policy is key not only to creating jobs but to building a robust tax base north of the Border.

The Scottish Government has to sit down immediately with the Scottish Trades Union Congress, Federation of Small Businesses, Scottish National Investment Bank and Scottish Enterprise, to prepare a five-year industrial plan. Only then will it convince voters it is serious both about creating jobs and preparing for independence.