Big price increases in this “deflation”

Today life has got dearer again. Postage has soared, with the cost of a second class letter rising from 27p to 30p. I make that an 11% increase. It follows hard on the heels of the typical Council who want an extra 5%, and the railways who pushed their fares up by 6% (regulated) and more if unregulated.

These three important services have something in common. They are all government owned, in whole or part, and their prices are controlled by government! The government benefits from the extra revenue they collect, whilst losing from the inefficiency they often display in how they run themselves. Because they are largely monopolies they can spend what they like and charge it to the user, if the government is weak enough to allow them to do so.

We are told by some sages that the government’s worry is deflation. Deflation means falling prices. I see no deflation, with the CPI going up 3.2%. That understates the inflation many are feeling. Meanwhile the government is pushing up petrol and diesel tax so we all have to pay more at the pumps, and so deliveries become dearer.

It’s not just the monopoly public sector which is pushing up prices. The competitive private sector is having to pass on some of the 25% devaluation of the pound where it is importing manufactured goods, as I have pointed out before.

There is only one word to sum up what we are experiencing – slumpflation. The government sector is the main inspiration of the inflation we are now facing, just as its broken monetary and financial regulatory policies were the origin of the slump.

I see today Ireland has decided it does have to cut its deficit by a combination of spending cuts and tax rises. How much longer before Mr Darling bows to the inevitable?


  1. John, play fair – you ought to since most of them are your political colleagues – the average Council tax increase this year is less than 3%, at a time when the most relevant measure of inflation to Councils, CPIy, is still above 4%.

    As to what the UK is doing about the recession, there are arguments for and against it, but I remember that maintaining our ability to do it if we so chose was one of our arguments against joining the Euro.

    We should at least be glad that we have the choice that Ireland doesn’t – let’s see how their way of dealing with things works before we follow it, shall we?

    Reply: Yes, some were low Tax increases from Councils – but the price cap was fixed at 5% by the government.

    1. David B
      April 7, 2009

      Something does have to be done about local government finance. We have now had two goes at fixing it, and its still totally unfair. Also, if the government wants to give councils responsibilities it has to see they are adequately financed. There’s a high degree of buck passing between local and national government.

    2. James
      April 7, 2009

      Our council tax, here in the South West, went up by nearly 5% as a result of ‘balancing out’ by the new Unitary Authority which was sold to us on a promise of multi million pound savings for taxpayer.

    3. Ian Jones
      April 7, 2009

      Why is the inflation rate for councils so high? Is it do do with all the extra employees, whopping CEO salaries and nice pay rises!!! Pay cuts and headcount cuts should be on the agenda.

      1. Ian, the inflation rate for Councils is high because the inflation rate is high! It looks low at the moment because what is being reported is RPI, which includes mortgages (councils don’t have those) and the VAT cut (councils don’t pay VAT).

        Have a look here: and you will see that the CPI measure, excluding mortgages and the VAT cut, shows inflation to be 4.6%.

        In that context, Councils have done very well this year on average, with an increase of around 3%. Add in falling income from businesses, property developers and interest on reserves, then growing demand for old people who can’t pay for their care as their houses won’t sell, and newly unemployed people getting housing benefit, and I’m quite surprised no Councils have gone bust yet.

        Meanwhile as a local government worker I’m not sure that a pay rise of 2.75% last year and 0.5% this year counts as “very nice”, for a total of around 3.25% when inflation has been more like 8-9%! I’m happy to take an RPI increase this year as long as I get one next year too when interest rates and VAT go back up. What do you think? No, I thought not.

        Reply: I think Hammersmith and Fulham, with their third year of cuts in Council Tax, show it is quite possible to cut costs and the tax without damaging important services. More should try it.

        1. Publius
          April 7, 2009

          With respect, I don’t see why you think you have some sort of right to any pay rise at all? You’re lucky to have a job.

          When I see my own income slashed by over half, as it has been; and my pension in ruins; and when I consider that my future looks like penury and a trip to ‘Dignitas’, I’m afraid I can muster little sympathy for someone complaining about not getting a bigger pay *rise*.

        2. alan jutson
          April 7, 2009

          Local government Officer.
          I am pleased you are happy with your pay rise, and the promise of more next year.
          In the Construction Industry most sub Contractors are taking a 40% pay cut in order to keep in work.
          We now have SKILLED self employed people earning £70.00 a day or less. Out of which they have to purchase their own tools, run a vehicle, pay for ALL of their own Pension contributions as well as National Insurance.
          They do not get paid for Holidays, or when they are sick, or rained off.
          And they have to Insure themselves against Third Party and Public liability Claims (cost about £1,000 per year).
          In addition about one week a year is spent completing VAT forms (tax collecting for the Government) and filling in the most stupid of CIS tax system forms.
          On top of that they spend time looking for work and calculating the cost of jobs for free, because thats what you have to do.
          You should think yourself bloody lucky because these people are payong your WAGES and Pension contributions.
          If you worked in the real World, then you may realise how lucky you are.

        3. Ian Jones
          April 8, 2009

          Your pay rise was bigger than mine but I have no choice whether or not to buy your wares. Money has been thrown at Government, both local and national and now its time for economies.

          Public sector workers really have no clue what is going on in the real world. No pay rises or even pay cuts, pensions value collapsed and loss of jobs. I still see lots of jobs advertised that could be avoided, time for a headcount freeze, pension cut and pay freeze.

          Lets follow Ireland!

        4. Ian Jones
          April 8, 2009

          One other point, why should the old people be forced to sell their houses to pay for care when those who cannot be bothered to work get it for free? What sort of country is it that screws over those who save and rewards those that dont bother?

          Any wonder why the UK is now a second class country quickly heading for third class?

          angry, yes…..

    4. Acorn
      April 7, 2009

      The Band D Council Tax increase of 3% was no accident. That was the number the government wanted. They make sure that LG Finance Officers know it before Officers draft the budget for the Councillors rubber stamp.

  2. mikestallard
    April 7, 2009

    Because of government figures no longer being reliable, we, the voters, are rapidly falling into an unknown pit of national debt.
    It is very, very scary for us.
    We could, you see, lose much of our family savings, and also find that the house, which is our major investment, is now pretty well worthless. We can, very easily, go onto the dole.
    Most middle class people lost, long ago, the ability to pay for their children at public School or their Grannie in a Home or their private Health Care.
    People talk about Zimbabwe, even on the News now.
    Meanwhile, loads of restrictive laws pour out of Europe. We can see that there is little chance of recovery if they are put into practice. Working hours directive? Male maternity leave? Equal pay for both sexes? The firms will be drowning a a wad of useless paper full, no doubt, of half truths.
    I just hope that the Conservatives are there, waiting for their traditional role of restoring the country after another bout of Labour misrule.

  3. Brian Tomkinson
    April 7, 2009

    JR: “We are told by some sages that the government’s worry is deflation.”
    This is part of the government’s conjuring trick to divert public attention from their plan to inflate their way out of debt.
    When is the MPC of the BoE going to take action to meet their CPI target which has been above target for 18 months and last month was 60% above target and rising?

  4. Colin D.
    April 7, 2009

    The inflationary spiral will accelerate tomorrow with Quantitative Easing, the next day with the interest on all this borrowed money, and the day after when we all have to start paying back the debt. You may worry about inflation, but it is exactly the outcome this government is after. It is a deliberate but covert policy, and the more inflation the merrier!

  5. ken from glos
    April 7, 2009

    How right you are. I visited my local B @ Q and the BBQ i bought last year has gone up by 66% !!

    1. Stuart Fairney
      April 7, 2009

      Not if you are the Home Secretary who can claim the cost of a BBQ back on expenses!

      1. APL
        April 7, 2009

        Stuart Fairney: “Big price increases in this “deflation””

        Perhaps that would explain the deflation meme? The Political class have to spend next to nothing to maintain their own standard of living – everything including it seems porn is charged to the public account.

        THEY see the cost of everything going down, because for them the cost of everything is bourne by the public account.

        Six months ago as a private citizen, had to pay for everything. Three months ago got a nomination to one or other political party and managed to get elected**, now everyone else has to pay for ‘my’ everything.

        QED. The politicians see deflation.

        Stuff enough postal votes and anyone can get into Parliament!

        Even so, I am not sure we have seen the last of deflation, yet.

      2. alan jutson
        April 7, 2009

        And the food that goes on it if the Press is to be believed.

  6. OK John, we’re in agreement that the Government fixed the cap for council tax rises at 5%, but lots of councils went for a number much less than that, and some for no increase at all, so 5% isn’t “the typical council”, it’s right at the far end of the scale. It just seems silly (from your perspective) to blame Tory Councils for Labour Government decisions!

    1. Simon
      April 7, 2009

      I’m no expert on finance but I just looked at our local (Tory) Council website and they’re still advertising for people to do the most inane jobs. They have also just purchased another spy car to harass us with. On top of that they lost money in Icelandic banks, the local paper reported recently that they have loads of people on high salaries, they squander money on glossy “newspapers” that are shoved through our doors. I parked on the verge recently and a woman popped up from nowhere and threatened to give me a ticket, turned out she was a “verge warden” whatever that may be. I had to visit the Town Hall and the officers there had lackeys to do everything for them, one to escort you to the meeting room, another to escort you out, another to offer them (not me) coffee. Two senior officers to conduct a meeting that could easily have been done by one. My impression was that the place was awash with cash.

      The point is that instead of boasting about keeping rises in Council Tax low you should be cutting these taxes. I reckon you could probably do away with at least 25% of “services” round here and it would make life more pleasant for people. Lord Jones recently said that 50% of bureaucrats should be sacked as they are a waste of space. Why not try and cut back a bit?

  7. Ian Jones
    April 7, 2009

    When you look at the IFS report that came out yesterday it is obvious that the only way out for a Govt which wants to be elected again in the next 50 years is inflation.

    The gap between spending and tax is now too big to bring back into line by direct cuts in spending or realistic rises in taxes. The fall in living standards is too big to admit.

    Therefore they will try to inflate their way out. Unfortunately for it to work without getting stagflation requires the “people” not to expect the inflation which is why we get the crap about deflation. Problem is everyone knows inflation is coming so we go straight to 3 million unemployed and high inflation whilst they fiddle with spending/taxes to get it back in line.

    It happened in the late 70’s and the economy didnt really recover till the 90’s, this time its worse so it will take longer.

    Thank you Gordon Brown aka Mr no more boom or bust!!!

  8. Chris
    April 7, 2009

    Defalation? Not from where I am sitting. Food prices going up, energy prices going up, council tax going up, national insurance going up. The only thing not rising is my pay.

    I suspect the only chance of deflation is to import it from China but the weakening of the pound and the fact people are less and less able or willing to purchase the luxury items from China will greatly reduce any potential affect.

    It appears that this government is willing to continue to lie to give truth to the claims of the great Gordon, however much that hurts it’s citizens. Thier behaviour will extend this recession and ensure we continue to feel the pain for many years to come. It is all very sad.

    1. APL
      April 7, 2009

      Chris: “Defalation? Not from where I am sitting.”

      Depends on your definition of ‘deflation’. Deflation is not necessarily the decrease in prices, a ‘saner’ definition might be a decrease in money AND credit.

      Everyone seems to agree – we are in a credit crunch. That is a lack of credit. The value of your house, if you happen to own one has probably decreased, large ticket items, a new car – given the oversupply of motor vehicles – will probably go down. But then there may be fewer people who can afford to buy a new car.

      Food, will become more expensive, there is (Unless we are in the EU , Oh we are! ) fairly tight supply. So the demand for food will surprisingly (irony intended) stay strong. Although in a socialist régime they often don’t care too much about the supply of food. So don’t expect to get your mouth around much of the stockpile, the ‘Eurocrats’ need their five course lunches more than you need your ploughmans and pint.

      We have seen massive destruction of money and credit so far, every bank that has been bailed represents deflation, Bernie Madoff destroyed $50billion, there has been a massive decade long mis-allocation of resources. There is a good chance there is still a $1T or so of losses to take.

  9. subrosa
    April 7, 2009

    You forgot to mention Scotland John. We have a council tax freeze up here for the second year. Of course budgets will need to be trimmed to pay for it but the people consider that’s worthwhile.

  10. Acorn
    April 7, 2009

    I think it was The Grocer mag., that said inflation of groceries is currently 18%. Going through my CC receipts I reckon mine is nearer 21%, (they have a lot of wine bottles on them).

    As we have given the ONS a bit of a bashing lately, can I give praise to the Author of the following; I recommend it for Easter reading, if you are into stats., that is.

    The tables in app., 1 are fascinating. An employer would have to pay out £33,198 a year to achieve a post tax household income of £22,420. Notice the direct and indirect tax grab; and, cash and “in-kind” benefits. I bet you didn’t realise that the NHS is worth £3,462 a year to your household (Table 14).

  11. TomTom
    April 7, 2009

    The question for government is how to lower living standards. Devaluation has long been a favourite means of reducing consumption, an alternative to mass unemployment. Then stealth taxes and user fees were favoured, inflation tax, and often fiscal drag.

    This time the scale is simply too big and it will require all of it over many many years simply to compensate for years of living high on the hog. Britain is self-sufficient in nothing but hot air and will need to set priorities for imports probably through an EU tariff wall as the world economy de-couples. There are simply too many producers and too few cash consumers as opposed to credit junkies.

    Goldsmith’s book The Trap warned Europeans they could not have welfare and Chinese goods…..some people only learn by experience

  12. John Bowman
    April 7, 2009

    It is only politicians, and it seems clueless voters, who believe you can only get more out of an organisation by spending more on it, and thus the converse.

    Political performance is then gauged by spending more, business performance on spending less.

    The key word is efficiency, that is maximum output at minimum cost. Applied properly, efficiency drives up output by reducing waste and making better use of resources.

    It does not follow then there would be a directly proportionate reduction of public services (such as they are) by reduction in spending.

    But even if that is so, that is what happens when you are over-spent and over-borrowed, you have to do without.

    It may be no bad thing if some hospitals were shut down, schools closed so the dozy electorate gets the message that every Labour Government is the same – tax, spend, borrow to the point of ruination.

    Perhaps if it were called the Leopard Party… people might spot what it was about.

    Stop blaming politicians; blame the voters. They voted these clowns in three times.

  13. TCD
    April 7, 2009

    Always having been an opponent of the wasteful and bureaucratic EU, I am now glad that, living in Ireland, the Irish government is forced to economise by the German austerity. Freedom (from Europe) is great but requires self-discipline, and the Brown government obviously has none of the latter. This is not to say that I am now in favour of Europe in general of course.

  14. oldrightie
    April 7, 2009

    I have been saying for over two years that we would face depression as the world begins to recover, based on our debt liabilities racked up by 2005. These are now ten times higher. Stagnation will not be helped by a weak currency that is unwanted. It will only lead to international cherry picking of a very poor skelton.
    I know this is doom laden talk but without a change of Government we will not begin to get out of this mess. Brown is clueless and deluded.

  15. Andrew Duffin
    April 7, 2009

    How much longer before Darling bows to the inevitable and cuts the deficit by a combination of tax rises and spending cuts?

    Well I guess he won’t have much trouble with the tax rises! He and his predecessor have had years of practice at this, and especially at doing it in sneaky ways.

    Spending cuts will probably have to wait until the country visits that spa Mr. Mandelson was talking about the other day…

  16. PayDirt
    April 7, 2009

    “Excessive inflation is a typical outcome in oligarchic situations when a weak (or pliant) government is unable to force the most powerful to take their losses – high inflation is, in many ways, an inefficient and regressive tax but it’s also often a transfer from poor to rich.”


    April 7, 2009

    “Today life has got dearer again. Postage has soared, with the cost of a second class letter rising from 27p to 30p. I make that an 11% increase.”

    The preposterous ex-boss of the Fottball Association – yes the one who negotiated Sven Erikson’s multi-million package that included millions for sitting on the sidelines after his performance and personal conduct resulted in his dismissal – has presided over all this.
    Yes YOU, Adam Crozier with your £1m+ salary and your £2m+ bonuses!

    When Crozier and Leighton took over at Royal Mail/’Consignia’ (!) they artificially held down the price of a 1st class stamp (to 27p we think) resulting in their personal pay package being based on the profitability increase when they did finally increase stamp prices. No wonder Crozier has trousered such exhorbitant sums since!


  18. pipesmoker
    April 7, 2009

    The local parish plan has just dropped through my letter box, it followed the district council, and then county council self congratulatory magazines all produced and delivered and printed at some considerable expense out of money which has been extracted from me in council tax.

    An absolute waste of money, it has gone back to them in the post, at their expense for recycling! Why do they do it?

    1. Adam Collyer
      April 7, 2009

      Mainly because they are obliged to by law – a law brought in by this government of course…

  19. Ruth
    April 7, 2009

    How right. I mentioned on this very blog a few months ago that inflation on a number of the products I sell was looking to be 20-25% due to the currency problems. I updated my prices in January only to find many of them becoming obsolete immediately.

    Every time I restock on certain products at the moment, I am seeing huge increases on imported goods. The old retail price is effectively becoming the trade price. In the last 8 months, inflation on some products has been 50%+.

    Deflation? Not likely from where I’m standing!

  20. Denis Cooper
    April 7, 2009

    The Monetary Policy Committee is doing its best to look ahead, as we would expect it to do, and its most recent prediction for CPI, in the February 2009 quarterly Inflation Report::

    offered as its central projection that the year-on-year change in CPI would now be about 2%, falling but remaining positive over the next three years.

    However, the fan chart also admitted of the possibility that the year-on-year change in CPI could turn negative this summer, and remain negative for years to come.

    I’ve seen it suggested elsewhere that a reported year-on-year drop in CPI of 1% is psychologically critical:

    “Swiss consumer prices fell 0.4pc in March (year-on-year). Swiss CPI will be minus 1pc at least by July, nearing the level where spending psychology changes. By the time you have a self-feeding spiral, it is too late.

    “This is something that we must prevent at all costs. The current situation is extraordinarily serious,” said Philipp Hildebrand, a governor of the Swiss National Bank. ”

    But then again some people regard that as twaddle.

    Personally, I always prefer to keep a safe distance between myself and the edge of a cliff, even if some people urge me to go closer to the edge, and try to persuade me that in any case it wouldn’t be so bad to fall over as we’re really at too high an elevation anyway.

    Call me over-cautious, if you like; but then I’ll console myself with the thought that if the senior managers of the banks had been similarly over-cautious then we wouldn’t now be in this godawful mess.

    Incidentally, Council Tax is not included in CPI, which is (of course) the EU’s HICP, which is (again, of course) why Brown adopted it in preference to RPI-X.

  21. Publius
    April 7, 2009

    Government – both local and national – just needs to stop trying to do so many things. Year after year there are more rules, which require more inspectors to police them, and then people to police the inspectors.

    In almost every aspect of life, gov’t regulation has increased massively over the past years. HIPS. New regulations on rental property. New rules on what must be tested for MOTs, making MOTs more expensive. Health & Safety, of course, which means that every aspect of life is dominated by a terror of being sued. The endless proliferation of road signs. Cameras everywhere. People then who must maintain and repair the cameras… And on it goes.

    All this has a cost. It is a hidden tax.

  22. Adrian Peirson
    April 7, 2009

    An alternative view might be that Prices are not going up, the value of our money is going down.
    the reason why we have to borrow more an dmore is because the Offshore Central Banks which are Private companies have a monopoly on Printing our money ( out of thin air ) which we Borrow AT INTEREST, well, where do we get the money from to repay this loan PLUS INTEREST, obviously we must Borrow more next time, what is the effectr of having more money in circulation, it becomes devalued, hence the invisible inflation tax.

    We should coin our own money, FREE OF CHARGE and issue that into the economy.

    But of course the PRIVATE Central banks would not like this, just like the Petrochems would not like it if I were to drive to my local farmer and fill up with Veg Oil, like I used to drive to Tescos in my diesel car and fill up with Veg Oil ( actually I diluted it 50 50 with regular diesel as veg oil is slightly thicker, but you get the idea, there are vested interests at play with money, fuel, food supply ( our ability to fish for example )

    1. Denis Cooper
      April 8, 2009

      But the Bank of England is not a private bank; unlike the Federal Reserve, it’s a publicly owned central bank, notionally owned and controlled by the people through their representatives in Parliament, and notionally to be run for the benefit of the people.

  23. Adrian Peirson
    April 7, 2009

    Here’s a good idea, why don’t we print our own money instead of Borrowing it.

  24. Martin
    April 7, 2009

    Mr Redwood – you are right about inflation – Sterling devaluation has pushed up prices of Food especially.

    There is however a strange paradox here – the ECB in Frankfurt seems to be saying No (Nein) to Quantitative easing. The German Government seems to be saying much the same thing. Over here in the UK the Conservatives are saying much the same thing! Do the Conservatives need to reconsider their thoughts on the Euro? A certain Monetarist as the UK representative on the board would really give the Tax and Spend mob something to think about while the sound money lobby would rejoice.

    Did Mr Brown oppose the Euro because he wanted to keep the devaluation option?

    Reply: Ireland shows what happens if a country joins the Euro when it is not in line with the core. It meant a bigger credit bubble for them, as interest rates were too low, followed by a bigger bust as the currency is too high. The UK might have made the pressures inside the Euro too great.

    1. Denis Cooper
      April 8, 2009

      When has the presence of UK representatives within the EU institutions ever ensured a significant, enduring, improvement in the workings of the EU?

      1. Martin
        April 8, 2009

        That’s one of those “What If ?” questions that is impossible to answer!
        Swop UK with any other member state in your question!

        Indeed if we don’t stop this devaluation disease then I suspect its only Zimbabwe that would share their currency with us.

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