THE UK’s official inflation rate, which by default is also that for Scotland, fell this week. A decline from 11.1% to 10.7% might not seem to be much to get excited about, except for one thing, and that it was exactly what I expected to happen.

If my expectation continues then inflation will tumble during 2023. If you listened to the mainstream political and economic commentary you would have no clue that this was likely to be the case. And yet, I am actually far from alone in thinking this.

The supposedly independent Office for Budget Responsibility (OBR) forecasts exactly the same thing. By early 2024 its latest forecast does suggest that inflation might be negative. In other words, it thinks that in 2024 prices might actually be falling, even if not by much. It expects that trend to continue into 2025, mainly because it expects the current falls in oil and gas prices to continue.

The National: The rig used to drill the Serenity appraisal well credit Europa Oil and Gas

The Bank of England also pretty much shares that expectation. It too thinks that inflation is going to fall away as 2023 progresses.

Despite this what I hear almost continually is ministers claiming that the fight against inflation must be maintained. This, they say, requires that public sector workers must accept massive real pay cuts whilst the Bank of England simultaneously increases the cost of living for many by continuing to hike interest rates. Those politicians claim that the forecast falls in inflation are dependent on both those things happening. They are wrong.

Inflation happened because of price increases after the world reopened after Covid and because of the disruption caused by the war in Ukraine. The likes of the Bank of England and OBR agree with me on this, so the claim is not contentious. And since these were largely one-off shocks and because inflation is simply a comparison of prices one year with those in the same month the previous year, once these events move more than 12 months into the past their impact falls out of the inflation calculation.

The National: The Bank of England

That process is beginning now. The impact of the Covid-inspired price increases in the autumn of 2021 is now just beginning to fall out of the inflation calculation. That is why inflation is beginning to fall. And once we get beyond the anniversary of war in Ukraine starting this will accelerate. Without another similar, and so far unknown, shock happening in the world this is just about inevitable.

So, do we need interest rate increases to deliver a fall in inflation? The straightforward answer is no, we don’t. We never did need them because they can only be effective in controlling inflation caused by excess consumer demand, and right from the start of this current inflation we did not have that. Instead, we had inflation driven by supply chain disruption, which is quite different. As a result, all the pain those increases are causing has been completely unnecessary.

Do we also need pay disputes? Again, the answer is no, we don’t. The reason in this case is threefold. First that’s because as a matter of fact, as the International Monetary Fund has shown, in situations like the one we are in where pay has not driven inflation but has instead lagged behind it, average wages do always catch up with price rises, and do so quite quickly, so fighting this inevitable fact hardly seems worthwhile.

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Second, it is really important that pay does catch up quickly because unless it does people do not have enough to spend and that is the reason why this inflation is tipping us into recession. If only people had the pay rises they both need and deserve now that recession would be unlikely to happen, assuming that interest rate increases were also stopped and even reversed.

Third, these pay rises are totally affordable. This is easy to explain. If we have 10% price inflation and all wages went up by the same amount and tax allowances did not (which is what is happening) then it logically follows that all the revenues from all the big taxes (income tax, national insurance and VAT) will also go up by 10%. And since that would generate more than £70 billion for the Government and its maximum cost of increased pay is £28bn, inflation would, by itself, pay for the wage settlements that are now in dispute.

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So why is it that politicians and economic commentators are suggesting that inflation is still the great enemy that is as yet unbeaten, when that’s not true and any responsible government would be going out of its way to protect its employees by giving them the inflation-matching pay rises they need and deserve to protect their wellbeing and to keep the economy going? There are, again, three answers.

First, they might be ignorant of all this, which is unforgivable.

Second, they know this but want to use this inflation as an excuse to crush the public sector, those who work in them and those who rely on them, which is also unforgivable.

Third, they want to shift reward away from pay towards profits, meaning that privatisation of services, which remains the goal of far too many politicians, is more likely. Again, that is unforgivable.

I have no other explanations because I cannot find them. All I know is that working people are being deliberately harmed by policy coming out of Westminster. And that is another reason to be rid of it.