UK inflation has surged again in the last month, despite the Bank of England raising its policy rates, and despite the massively expensive energy price subsidy that the government has introduced, which will add a huge amount to the government deficit and borrowing in the year ahead. The surge in inflation was way ahead of estimates, on all readings, and indicates a quickening rather than slowing pace. It means that claims of inflation peaking following a blip down in the US, are premature.
The UK headline figure for CPI, year on year, came in at 11.1%, up from 10.1% the previous month, and estimates of 10.7%. But, the cost of living hits different households disproportionately. For the poorest households, CPI rose by 16%. That is because poorer households spend nearly all their income on necessities. If you must buy a minimum amount of food, in order to live, must maintain a minimum amount of heating in your home, and so on, then, even if the prices of these commodities rises sharply, you must still buy them at these higher prices, and consequently, a rise in prices of these necessities does not cause the same kind of fall in demand for them that occurs with commodities that people can choose to consume or not. The demand for necessities is price inelastic. By contrast, the demand for luxuries is elastic, because consumers can respond to a price rise by reducing their consumption of it. As producers like to maintain existing levels of demand, so as to produce at higher, more efficient levels, they are more reluctant to increase prices of them.
A look at the RPI index, shows inflation at 14.2% on the year, as against 12.6% in the previous month, and estimates of 13.5%. Yet, in many ways, these figures are flattered. Not only has the energy price cap limited the effect of higher energy prices, but, those energy prices themselves have moderated in recent weeks, as the previous build up of stocks, and milder weather, combined with the continued slow down in China, due to its lockdowns, have reduced global demand. But, that is temporary. As Winter proceeds, demand for energy will increase, China is being forced to drop its ridiculous zero-Covid policy, with the prospect of a sharp increase in its economic activity, leading to higher prices for food, energy and primary products, in coming months, and with the energy price cap ending in April, leaving the prospect of a sudden, significant increase in energy prices at that point.
But, a look at the changes in month on month prices, shows that rather than inflation peaking its already picking up speed. The RPI increased, on a month on month basis, by 2.5%. In the previous five months, the increases had been almost flat, ranging from 0.1% in June, up to 0.5% in July, and 0.3% in September. If inflation continued at this month on month rate, then, in a year's time, RPI would have risen by around 19%. Looking at CPI, its month on month increase was 2%, compared with 0.5% in the previous month. If it continued at this rate for another year, CPI would have risen by around 28%. Even looking at core CPI, it rose by 6.5%, year on year, the same as in the previous month, which is more than 3 times the Bank of England's target for the headline rate of inflation. A look at inflation expectations also shows that, other than for August, when it was 6.3%, they remain higher, at 6.2%, than the 6%-6.1%, they were in previous months.
The higher inflation comes at a time that the Bank of England has been raising its policy rates over several months, apparently with little effect on either inflation or slowing the economy. Although GDP fell, quarter on quarter by 0.2%, in Q3, on a year by year basis, it rose by 2.4%. Moreover, as I've set out before, this drop in GDP is accounted for by the effects of inflation causing a tie-up of capital, as the replacement of consumed constant capital (materials, energy, wear and tear of fixed capital), on a like for like basis, requires a portion of surplus value to be used to cover a higher cost than was passed on into the value of output, in prices, so that that surplus value does not show up as profits, dividends/interest, and also, as capital sought to offset that, is also reflected in hourly wages not rising as fast as prices. In other words, it is only the value of revenues that have fallen, not the value of output, as also witnessed by the continued rise in employment, and consequently new value creation.
The Bank of England did start its promised programme of QT, at the end of October, but, given that it had only a few weeks before had to engage in additional QE, in response to the financial crisis caused by Truss/Kwarteng's budget, its not even begun to touch the sides of the vast ocean of excess liquidity already swilling around the economy, and which is the source of the current inflation.
It also, now, looks as though, at least some of, the drop in US inflation, reported last month, was the effect of some potentially spurious changes in relation to healthcare, which might see a move in the other direction, in coming months. In both the US and UK, and in the EU, where inflation continues to rise, the continued strength of labour markets is testament to the fact that claims about impending, or even existing, recession amount to attempts to scare workers into not making wage claims to protect against inflation, and to save rather than spend. Where it can, the capitalist state is using its position as employer, to try to cut workers' wages, by trying to impose wage rises of just 3-4%, meaning a real wages cut of around 8-12%, taking inflation into consideration. No doubt that is why millions of workers ae joining trades unions, and standing up to say no, and demand double digit wage increases, backed with a growing strike wave to achieve it. As in the early 1960's, there is little chance the government will be able to hold its line, as other employers continue to struggle to find workers, and are having to pay large wage rises to get them.
Average weekly earnings are rising at 6%, year on year, the highest for 40 years. That still means a fall of around 5% compared to inflation (2.5% in the actual survey period) but, as set out elsewhere, that is not the whole picture, because an increasing number of workers, in a tight labour market, are simply moving from their current jobs to higher paid jobs, and the average increase in pay from doing so is around 15%. That together with households having more people in employment, and more people in permanent full-time employment, as against precarious part-time, or even zero hours, employment, means an ability to increase demand for goods and services, even as inflation continues to rise.
Does that mean that there are not many who are being severely punished by inflation, illustrated by the increased pressure on food banks? Obviously not, which is why its necessary to combine the current strikes for higher pay, with demands for much higher benefits and pensions, and the inflation protection of them. In such periods, there has always been a growing absolute number thrown into such penury, even as others have seen their position strengthened. In Marx's day it was the growing number of paupers. It simply shows yet another division within society. The position of these weaker poorer sections of society will not be improved by other workers being conned into the idea that they have to moderate their pay claims so as not to increase inflation. On the contrary, our struggle for higher wages, is inextricably linked to a struggle for higher living standards for all, and the stronger we become, through our own militant action, to that end, the better placed we will be to demand a solution to the problems of the poorest too.
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