Prices are starting to ‘slow down’. Various news outlets have been running good news stories for the past few weeks about how we are through the worst of the inflationary period. “Has food inflation finally peaked?” asked the consumers friend, the Daily Mail. “Food prices might be starting to slow down,” pitched in the Manchester Evening News. “UK food inflation dips in May, raising hopes the rate of price growth is slowing,” said the Guardian. The Government mouthpiece, the BBC, however, ran with “Coffee and chocolate help drive supermarket prices higher.” One can only assume all those journos at the Beeb are desperate for their morning latte and pan au chocolat to return to their pre-recession prices.

However, what is actually happening is that prices continue to rise and inflation is coming down. How can that be? Well, as I have explained previously, inflation is calculated not on a week-by-week basis but by comparing a basket of goods with the same basket of goods a year ago. So, if inflation is, let’s say, 10%, what it means is that a basket of goods which cost £100 twelve months ago will now cost £110. So far, so good. 

But inflation can be reduced, not because prices are falling, but because they are not going up as quickly. The con job is to convince you that, as inflation is falling, the recession (to which they avoided admitting using ever-changing technical definitions) is, more or less, over. This means that the inflation-busting pay rise you’ve been fighting to achieve is no longer necessary. 

Our basket of goods shows how this works in practice. This chart shows the rate of weekly increase as a percentage of the previous week. That is the red line. 

What we show here is that, on a weekly basis, prices don’t appear to rise very much — but if you look at the blue line which takes the price of our basket on May 15th, 2022, as its starting point, we can see that the cumulative inflation rate is much larger. In fact, food inflation, based on these items, is now running at 34.1% over a year.

Now the Office for National Statistics (ONS), which calculates the rate of inflation, does not quite calculate them in as simple a way as we do. They do not take a starting point and then measure goods week-on-week, and then calculate the running inflation cost. They compare the price of a basket of ‘average’ goods from one year to the next; but they do keep changing the goods they are measuring, and it is not clear that they are actually comparing like with like. 

But this is a preliminary to the main point of this article. The line graph is based on real data. What follows is an illustration. 

Imagine that every month for an entire year there were no price increases. Every month you bought £100 worth of goods; and that £100 worth of goods remained at £100 for 12 months. Next January, you go to buy your basket of goods and suddenly they want £102 for exactly the same goods. In January year 1, that basket of goods cost £100, but now in January year 2, it costs £102. That means that the annual rate of inflation will be 2%.

Now in February year 2, that basket of goods costs £104 (compared still to £100 a year previously). The annual rate of inflation is now 4%. By the way, newspaper headlines will concentrate on how inflation has doubled, and probably blame wages, or a convenient war, or an increase in wholesale price of this or that good. What they will completely ignore is that companies will be deciding to increase their profit margins, which they can pass on to their shareholders in the form of dividends.

Now just imagine that, for the whole of year 2, prices increased by £2 every month. By the end of the year (December) inflation would be 24% (I’ve circled it for you). Now, in January year 3, great news — inflation starts to fall. In January inflation is 22.5% (circled), but by December year 3, it is down to a respectable 9.7%. This, of course, has to be good news for everybody, right? Wrong. If you look at the chart, in December year 2, that basket of goods — which only 12 months previously had cost £100 — was now £124, but by December year 3 it is costing £136. Now you don’t need to be a mathematical genius to work out that this is 36% more than it cost to start with. So how is inflation 9.7%?

The reason is that inflation is always taken as a measure of how much prices have changed in the past 12 months. So, if prices are exceptionally high for a period, inflation will appear to be falling simply because those high prices are the denominator; and that means that prices can continue to rise even as inflation is, apparently, falling.

The issue for workers is not what prices are relevant to the previous year, but how much your wages can buy. As long as your wages are rising at the same rate as inflation, then you are maintaining your standard of living, but every single below-inflation wage rise, or no rise at all, means that you are able to buy less than previously. That does not take money out of your pocket, it just means that the money in your pocket is not worth as much as it once was. That is why wages that keep pace, allegedly, with inflation are actually making you worse off, and why you should not believe the press as they will continue to convince you that getting poorer is a sign that times are getting better. They may well be getting better for some, but not for us — and that is the message every trade unionist should keep hammering home.

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