UK
UK headline CPI on Wednesday, came in at 10.5%, for December, as against 10.7% in November, with the core figure being 6.3% as against 6.3%. The latter was above consensus forecasts of 6.2%. RPI came in at 13.4%, as against 14%, and forecasts of 13.6%. Inflation at around or above 10-13% % can hardly be called a success for the Bank of England, on any measure. It remains at highs not seen for 40 years. The situation for food prices, which remains significant for household spending, and particularly for the least affluent households, continues to run at an even higher level. It came in at 16.8%, as against 16.4%, the previous month. It is the 17th straight month of rising food prices, and the fastest increase since, at least, 1977.
Most of the tiny reduction in headline inflation came from a fall in petrol prices between November and December, as the effects of a warm Autumn, and NATO's depletion of its Strategic Petroleum Reserves took effect. But, the Northern hemisphere has only just entered Winter, with the coldest months yet to come, and also, now, with China reopening, increasing significantly the demand for oil and other primary products, as well as NATO/G7 countries needing to scrabble to refill their reserves, before prices shoot up to a predicted $120 a barrel. The headline inflation rate, was unchanged month on month. The rate of price increases for services continues to rise, with prices for hotels and restaurants rising by 11.4% as against 10.2% in November. Healthcare costs rose by 5% as against 4.7% the previous month, and for all services, the rise was 5.8%, as against 5.4% in November. There is no indication, in this data, that inflation is going away any time soon, and certainly not to the target 2% level.
The latest wage data, released on Tuesday, for the three months from September to November, shows wages rising by 6.4% including bonuses, but also regular pay excluding bonuses also grew by 6.4%. Demonstrating the lies told by the Tories and their apologists, average private sector pay rose by 7.2%, compared to just 3.3% in the public sector. What this doesn't show is the effect that current strikes will have in raising those wages. Nor does it show the effect of workers simply moving to other, better paid jobs, where the average increase in pay amounts to around 15%.
As in the US, the UK also faces a relative shortage of labour. Vacancies fell slightly – by 75,000 – to 1,161,000, though that is still above the level prior to lockdowns, in March 2020. With the number of unemployed being 1.5 million, that means that there is one job vacancy for every unemployed person, which, although way below the 2:1 figure for the US, is still an historically high ratio. The number of people employed has also risen to record highs of 36.2 million, which is 541,000 jobs more than in December 2019.
The cause of UK inflation, as with that of the US, is excess liquidity pumped into the system over the last 40 years. That liquidity was injected to reverse falls in asset prices, and to ensure those asset prices continued to rise, as the ruling class, today, owns all its wealth in the form of such assets (fictitious capital) rather than in the form of industrial capital.
Every time the real economy begins to grow faster, and the demand for capital rises relative to its supply, interest rates rise, and cause asset prices to fall. For forty years, that process of ever inflating asset prices also sucked liquidity out of the real economy and into assets, but after the new long wave uptrend began, in 1999, it has been ever harder to sustain that, because the underlying economic dynamic pushes its way into economic expansion. The most dramatic example, so far, was the crash of 2008, and, ever since, not only have central banks had to directly pump increasing amounts into the purchase of assets, via QE, but governments have also had to directly constrain economic growth via austerity, restrictions on trade, and lockdowns. But each has simply heightened the level of contradiction.
As with the US, the lockdowns saw a further huge rise in liquidity, but now directed into the real economy, in the form of furlough payments, and once released, as lockdowns ended, that liquidity led to a sharp rise in inflation, just as previously it had led to the inflation of asset prices. The increase in input costs, which are themselves the output prices of other producers, is not the cause of inflation, but a symptom of it, as is the rise in wages. Of course, in Britain, there have been other increases in costs, just as there have in the US. The trade war introduced by Trump, caused US import prices to rise, with a consequent effect on other US prices, and Brexit had an even more pronounced effect on Britain, which imports the majority of its food, as well as materials, and a lot of energy.
Even with Britain having to comply with EU Single Market and Customs Union rules, Brexit means that its trade with the EU has shrunk by around 25%, with no significant increase in non-EU trade to compensate. It has introduced all kinds of restrictions on trade, with all of the added costs that implies that have then passed on into UK prices. Those restrictions have also led to a slow down in the rate of turnover of UK capital, with a consequent effect on the annual rate of profit of UK firms, for which they try to compensate by again raising prices. The UK has also suffered from NATO's boycott of Russian oil and gas, which has pushed up global energy prices. The UK, unlike the EU, does not get much of its oil and gas from Russia, but a rise in global prices still affects UK energy prices.
Initially, a rise in energy prices was not seen as a bad thing, because, for one thing, it was seen as only short-term, with the expectation that Russia would quickly be brought to the negotiating table over the war in Ukraine, and even that a colour revolution in Russia might occur, installing a western puppet regime that would sell off Russian resources, on the cheap, to western companies, but, in addition, higher energy prices sucked up household disposable income that was causing demand for wage goods to rise sharply, leading to rapid economic expansion, and rising interest rates that threatened to cause asset prices to crash once again. After all, high energy prices, also meant that household spending went to buy oil and gas supplied by western owned companies, and so to boost the profits, dividends and share prices of those companies, to the benefit of their shareholders. But, despite huge amounts of the latest NATO weapons and technology pumped into Ukraine, and a bottomless pit into which hundreds of billions of western Dollars was dumped, the reactionary and corrupt regime of Zelensky, was unable to defeat, or push back, the equally reactionary and corrupt regime of Putin that had occupied Eastern Ukraine.
Furthermore, in contrast to the conditions of the previous forty years, in which workers were on the back foot, and had to simply accept lower real wages, because they lacked bargaining power, now, as inflation rose, they responded by joining unions in increasing numbers, establishing unions in workplaces where none had existed, and taking industrial action to win pay rises to cover their rising living costs. The calculations were now all changed, because those rising wages, not only threatened to begin to squeeze profits, but they certainly meant that the demand for wage goods was not going to decline as fast as the speculators hoped for, and that meant that competition between firms would force them to continue to expand production, to employ more workers, to demand additional capital, causing interest rates to rise further, whatever central banks did.
The Tory government can try to impose further legal limits on workers right to strike, but it can't change the laws of economics. It can try to impose wage limits on its own employees, but with workers in the private sector already getting much higher wages, better conditions, and, now, also getting much bigger pay rises too, nothing can stop those state sector workers simply moving to other jobs. The average pay increase for workers changing jobs is 15%, and, contrary to the propaganda, private sector employees, on average, are already getting much higher pay rises than public sector workers, with the 16.9% pay rise of Rolls Royce workers being just a well known example. Shortages of truck drivers led to a 30% rise in wages, as haulage firms struggled to find workers, and recruited whole teams of local government bin lorry drivers and so on. Care workers can earn more as supermarket checkout workers, and so on.
The Tories can try to impose further limits on the right to strike, but, in conditions where workers are increasingly in the driving seat, that will fail, just as it did when, first, Wilson's Labour government attempted that in the 1960's, followed by Heath's government in the 1970's. Already, in Britain, we see a naturally evolving General Strike developing, as wave after wave of workers are drawn into strike action, each one joining millions of workers already engaged in such action. The media can bleat as much as they like about public opinion, but the reality is that, not only is public opinion irrelevant, but it is necessarily on the side, now, of strikers, because the reality is that there are so many workers engaged in action that the majority of households, in the country, has or has had someone on strike. Everyone knows that it is not wages causing inflation, and that its unreasonable to demand workers not to have their wages rise in line with it. Even Heath's government in the early 1970's admitted that, and introduced the monthly indexing of wages to RPI!
As in the US, the perpetual announcements of impending recession have been proved wrong. GDP slowed, and, in some months, even contracted, but GDP is not output, and the reality is that capital does not employ additional workers to produce less additional value! GDP is a measure only of new value created, which is subsequently resolved into wages, profits, interest, rent and taxes. With more labour employed, more new value is created, and, so, if GDP falls, that is an indication, not that output has fallen, or even that the amount of new value created has fallen, but that some of that new value has been tied up as capital, to ensure the replacement of consumed capital. As in the US, even the UK economy, suffering the dire consequences of Brexit, has continued to increase employment.
UK employment has been steadily rising since about 1985, with short drops coinciding with periods of recession such as in the early 90's, 2008, and during lockdowns. It has risen from around 24 million to around 33 million. Its true that, unlike the US, it has not recovered the level it reached just before the introduction of lockdowns, in 2020, but it is significantly higher than during the lockdowns themselves, and also, even that in 2019. It's risen by around 1 million compared to the period of lockdowns, and although, during that period, many of those workers received furlough payments, they did not cover the whole amount of wages. That means that this is all additional wage income going into households that feeds into demand for wage goods, and which is supplemented by those furlough payments much of which was saved during lockdowns, as the potential for consumption was physically restricted.
Contrary to expectations of declining GDP, including from the Bank of England, UK GDP has continued to rise, and that is before, the effects of China reopening on the global economy take effect. As millions of workers take strike action in search of higher wages, that reduction in new value created will inevitably impact GDP, but as those workers win those pay rises, and begin to spend those wages on wage goods, causing firms to have to employ more labour and capital to satisfy that demand, the effect will be a further expansion of GDP in months to come. And, as that continued expansion leads to a further strengthening of workers' position, and employers pay up higher wages, central banks will again respond by increasing liquidity so that firms can raise prices to avoid a bigger squeeze on those profits.
At the same time as increasing liquidity, the resultant inflation means that the hopes of cuts in official interest rates will be dashed. But, the increased demand for capital, will cause market rates of interest to rise too, causing asset prices to fall further, with a consequent rise in yields on bonds and shares. Increasingly, the mindset of the last 30 years of a search for speculative capital gains, as against yield will be reversed.
EU
For the EU, the figures, released on Wednesday, were, for the headline rate, 10.4% as against 11.1%, and 5.97% as against 5.96% for core inflation. (For the Eurozone it was 9.2% as against 10.1%) As in the UK, the figure for food prices showed a rise in the rate of change, from 17.26% to 17.86%. Energy prices have more or less doubled. The biggest increase is for gas, as a result of NATO's boycott of Russian gas supplies, now exacerbated by it having blown up the Nordstream 1 and 2 pipelines, to prevent EU countries backtracking on that policy. That decision which caused energy prices to rocket, and forced the EU to buy more expensive oil and gas from the US, illustrated the continued subordination of EU imperialism to US imperialism, further illustrated by the trade war unleashed by Biden and US imperialism against the EU, via its Inflation Reduction Act.
The soaring energy costs, were seen as a means of soaking up household discretionary income that was fuelling increased consumption, and contributing to the growing relative shortage of labour, and rising wages, as well as economic growth that led to a rising demand for capital, raising interest rates, and rapidly falling asset prices. Germany, which for years has had significantly negative bond yields, has seen those yields rise to 2.20%, as its bond prices, like those across the globe, have crashed.
The ruling class speculators that own all their wealth in the form of these assets, are desperate to see that condition reversed, and have repeatedly shown they are prepared to destroy the real economy and real capital to achieve it. But, workers, across the EU, have shown, as have those across the globe, that they were not prepared to just sit back whilst their living standards were reduced by these rising prices, or their jobs threatened by calls for recession, and closing down production in the name of NATO's war against Russia and China. The General Strike in France, yesterday, against Macron's attack on them, is just another illustration. The plans of the ruling class and their states have been upset.
Millions of workers across the EU have seen that things have changed, just as they did in the 1950's (and before that in the 1890's, and 1840's), as relative scarcity of labour has grown, as the fundamental dynamic of the long wave uptrend began in 1999, has again forced its way through, particularly after the reopening from the unnecessary lockdowns of 2020 and 2021, themselves intended to slow down economic expansion, rather than being any kind of rational response to the pandemic, as Professor Woolhouse has shown. Not only have they, like other workers, joined unions in larger numbers, and taken industrial action to win higher wages, but they have also taken to the streets in large numbers protesting at the massive rises in energy prices that have resulted from NATO's boycott of cheap Russian oil and gas supplies, as part of its economic war against Russia and China.
The number of employed workers in the EU continues to grow, to 197.6 million from 195 million. Both the unemployment rate (6%), and the long-term unemployment rate (2.4%) continue to fall. Wages are, so far, failing to keep pace, rising by just 2.8% up to September, last year. But, that does not reflect the growing mobilisation of workers across Europe, as elsewhere, seen in more recent months. Despite all of the same predictions of recession, and despite the potential of that, caused by the EU's boycott of Russian oil and gas, which hugely increased its costs, the fact is that the EU also continues to grow. Its GDP rose by 2.5% in the third quarter compared with a year earlier, and, as described earlier, GDP is not a measure of output, but only of new value created, and, itself, also affected by the tie-up of capital involved in periods of rising prices.
As the EU's largest economy, Germany has also been affected by the low level of economic activity in China, itself resulting from the attempts of the Chinese ruling class to slow growth via its own lockdowns. Germany is a major supplier of luxury cars and other manufactured commodities, as well as high value capital goods to China. With China's ridiculous lockdowns abandoned, and its economy reopening rapidly, that will have a dramatic effect on the German economy, and, thereby, to the EU economy. The latest ZEW Survey illustrates that, having jumped by 40 points. The predictions had been for it to show a decline of 15 points, but it rose to 16.9, the first time its been positive since February 2022.
As the EU economy expands further, as China reopens, the position of workers will become stronger too. Already, workers in France are set to continue their strikes against Macron's attempts to increase the retirement age, and so on, with large strike waves, also, having taken place in Belgium and elsewhere. The Winter has only just begun, with the potential for colder weather, across the continent, causing the demand for energy to rise again, leading to higher energy prices, that have fallen in recent months, as the EU had stocked up at much higher prices, and the Autumn was mild.
The ECB was already late to the party of rising rates by central banks, and although the talk of recession will disappear, and, along with it, the speculators dreams of once again falling rates, as workers across Europe respond to rising prices with increased demands for rising wages, the ECB, like other central banks, will respond by ensuring sufficient liquidity is available to allow firms to raise prices further to protect their paper profits. The inflation is not going away any time soon.
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