Don’t fall for the con. Wages are not the cause of high inflation — and raising interest rates, as the Bank of England are doing and plan to do some more, will not reduce inflation unless it spirals us into a very deep recession.
We all know that inflation has been high for over a year. You don’t need to be an economist to notice prices going up. The Critical Mass Shopping Basket of 14 goods that cost £13.43 a year ago now costs £18.07 – an increase of almost 30%; but rather than point the finger at profiteering companies, the Tories and their friends in the media have found their usual scapegoat – you.
Yes, inflation is high because ordinary workers want their pay to keep pace with higher prices. The latest Office for National Statistics (ONS) figures show that average wages have risen by 7.2% over the year.
For the bosses’ paper, the Financial Times, there is only one viable culprit: greedy workers. The paper says the rise in wages is far above the level that the Bank of England regards as consistent with controlling prices. Hence, the bank is planning further rate rises.
Rate rises are a blunt instrument at the best of times, but the main impact of raising them is to increase the cost of debt, such as mortgages and loans. Increasing them is supposed to slow down the economy. This means higher unemployment, more poverty, and more homelessness.
You might wonder, then, whether raising interest rates is really a smart move? First, you would need to be convinced that it is the main culprit for rising inflation; but, at a time when wages are, on average, rising by 7.2%, inflation in the UK remains stubbornly at 8.7%. You might notice this, but in case it passes you by, wage inflation continues to be below the Consumer Price Index (CPI) rate of inflation.
Hidden away in the ONS press release (actually, not so much hidden as ignored) is this: “Growth in… regular pay fell in real terms… by 1.3%…” In other words, adjusted for inflation, wages continue to fall. What that means is that, in real terms, wages are not keeping up with prices.
It is inflation fueling wage demands, not the other way around.
But if not wages, then what? The Ukraine War? Covid? Other countries affected by both the Ukraine War and Covid have had higher than average inflation rates, but have managed to keep inflation at lower rates than the UK. The USA, for example, currently has a rate of just 4%, and the Eurozone 6.1%. China, incidentally, has inflation of 0.1%.
Profits and dividends, however, continue to rise. Allegedly, higher profits (such as the £6.9 billion made by BP last year) are good for the economy. After all, higher profits mean cheaper goods, yes? So why, as all the big energy companies are making record profits, are your bills continuing to rise?
Higher profits mean more tax revenue so better public services, correct? So in 2018, when BP made £5.6 billion in profit, how come it received tax credits worth £134 million? That’s right. Huge profits, yet a handout from the public purse — and they call us ‘scroungers’!
You need more wages, benefits, or pension, just to stop your standard of living from falling. Companies need more profits just so they can hand more money to dividend holders, many of whom are rich enough already.
Wages are not fuelling inflation. Wage rises are necessary to stop people losing their homes, to ensure that in the cold we can put the heating on, and simply keep pace with rising prices. Profits do what? Essentially, they ensure that the rich continue to get richer on the backs of workers whom they blame for the greed, which means that the rich must continually have more.
It is time for all of us to stop believing the fairytale that any positive aspects of capitalism are their doing, and all the negative aspects are ours. Time to change to a system that rewards those who actually deserve it. The real wealth creators are not sitting in suits in board rooms – they are in the factories, shops, fields, and workshops.
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When every problem looks like a nail the solution is always a hammer; or in the case of the bank of England their solution to everything is an interest rate increase, whether it appropriate or not. The banks independence is a smoke screen for a corrupt, avaricious, amoral government to hide it’s negligence behind the skirts of the old lady of threadneedle street.