Tuesday, April 20, 2010

Poorer By The Day

So much for deflation

One of the ways that you're being made to pay for Brown's catastrophe is via higher prices. And today's worse than expected inflation numbers underline just how painful it's getting.

All the official measures of inflation have jerked back up again, and are almost back at the levels last seen before the financial crisis broke in 2008.

It's being driven by higher energy prices on world markets, but also by the fall in the value of sterling which is increasing the prices of everything we import. And these days, that means virtually all the goods you need to survive day-to-day (eg I'll bet you're not wearing a single item of clothing manufactured here - Tyler's currently wearing India, Bangladesh, Sri Lanka, and Egypt... although his socks are of unknown origin).

But while inflation is running between 3.4% and 4.8% (depending on which of the government's various measures you pick), average earnings are only rising by 0.9% pa. Which means that over the last year, the average worker has had his real income squeezed by between 2.5% and 3.9%.

And it looks set to continue. Earnings rising very slowly, while prices rise very quickly.

But in truth, wage earners should consider themselves lucky. Many people no longer have a job to generate any earnings at all - another million have found themselves in that position since the recession began (official unemployed plus inactive). And of course, pensioners dependent on fixed savings have seen their income walloped since the Bank of England fired up the printing presses and abolished interest on savings accounts.

As we've blogged many times, anyone with money - be it earned income or savings - is a sitting duck. And there is no way that a LibLab coalition will have the steel to do what's really needed - ie a substantial cut in public spending.

Which means the pain will land squarely on those with earnings and/or savings. Some of it will come via much higher taxes, and some from higher inflation (Darling's decision to freeze personal tax allowances actually combines the two, with people lifted into higher tax brackets by inflation itself).

And yes we know, given that everyone will have to tighten their belts (made in Cambodia), it's only fair that those with money contribute their share of tightening. Fine. Just so long as the state and its clients remember that they ultimately depend on those who earn and save in order to generate the income and the taxes on which they depend.

And that's something our campaigning politicos seem to be keeping awfully quiet about.

PS You know all that stuff about how HMG could lose its AAA credit rating? You can forget it. In reality, the bond market reckons HMG has already lost it. According to Credit Market Analysis, HMG's debt is already trading at prices below AAA (based on Credit Default Swaps). The market believes there is now a 1-in-15 chance HMG will default within 5 years. So the US is still AAA. Germany is still AAA. France is still AAA. Australia is still AAA. Even Gruniad Sweden is AAA. But we're not. Somewhere down there, Gladstone will be spinning.


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