HAMISH MCRAE: We can fight inflation - here's how

Daily Mail​

4 days ago

Stand by for another surge in inflation. It will happen here and we have a poor record on it compared with the rest of the developed world. But this is a global thing, not just a British one, and we have to arm ourselves against it.
We had a glimpse of our own future last week. The Bank of England expects inflation to rise through the autumn and it looks as though it will hit 4 per cent in October, double its target. Indeed inflation will probably stay above target right through next year and beyond. So what does the Bank do? It cuts interest rates.
True, there were four sensible members of the Monetary Policy Committee who voted against the cut and it looks like there will be no further cuts this year. I still expect the next movement to be up, not down, though so far I have been ahead of the market on that.
It's not all the fault of the Bank. Much of the blame lies with the Government. Whatever you think about the rises in living wage and National Insurance contributions the fact is they have increased costs, particularly for supermarkets and the hospitality industry.
Food prices are 4.5 per cent up on the year, and look like rising further through the autumn.
The combination of the Government's net zero and other environmental policies adds 16 per cent to a typical household's electricity bill. That's from a House of Lords study this year. Governments may want to follow these policies but they need to be honest about their impact on inflation and hence on living standards.
The UK has become an outlier on inflation, but we seem likely to be joined by the US, which matters vastly more for the world. There's the whole business about Donald Trump's attacks on the chair of the Federal Reserve, Jerome Powell, and who he might appoint to succeed him. We can assume that, whoever it is, the US will have looser monetary policies next year.
More immediately there is the effect of tariffs, which put up prices not just in America but everywhere. We don't know by how much, because the tariffs are only just coming in, but we do know that anything that gums up global trade raises costs. We all pay for that in higher inflation.
So what's to be done? Here there's a glimmer of hope. It's competition. Politicians don't really care about price rises; they say they do, but they don't.
Central banks everywhere have underestimated the danger of the resurgence of inflation, and now are, with the possible exception of the European Central Bank, too weak to take the steps needed to crush it. But the private sector can and must help. An example. You may have noticed a story last week that Lidl has replaced Aldi as Britain's cheapest supermarket.
We're supposed to be good at retailing, Napoleon's jibe that we were 'a nation of shopkeepers' and all that. But it has taken two German-owned groups to revolutionise our food distribution. Go into Tesco and the signs have a little tick and say Aldi Price Match. They don't say Sainsbury's price match, though that's number two behind it in sales.
It's foreign competition that is taming our shopping bills.
There's the challenge: to use our power as consumers to squeeze down inflation. If a restaurant imposes an extra charge on a meal, or pads its prices, go elsewhere. If an energy supplier ups the electricity bill, find another.
The same goes for other services. If your bank cuts the interest rate on savings, move your cash elsewhere. And so on.
It's an attitude to apply to taxation, too. If, as I expect, the Chancellor raises fuel duty and other taxes in the autumn, you follow the incentives. If that means driving (or drinking) less, so be it.
We have already seen a response to higher taxation in capital gains tax revenues since the last Government cut the tax-free limits. Many people decided not to take the hit, held on to their assets instead and revenues fell by 18 per cent in the 2023-24 tax year.
Ultimately it is not in our power to control inflation. If Government policies push it up and the Bank of England fails to curb it, then it's ordinary people who are hammered. But we can fight back and must do so in the months ahead.