THE BIG SQUEEZE
The Guardian reports CPI inflation slowed to 2.1% in November which
‘will give policymakers more headroom to leave interest rates at their record low.’
The Guardian thinks that this falling inflation
‘will also ease the pressure on households that have been grappling with living costs rising at a faster pace than average wages for several years’
which means that:
‘even if earnings growth recovers only marginally next year, an end to the squeeze on real earnings is finally in sight.”
And what is the cause of this falling inflation? -Falling factory prices:
‘ONS data showed factories’ costs falling while the prices they charge rose at a slower pace than expected last month’.
So is this the end of the present cycle of inflation? The Guardian does not think so. First it points out that rises in energy costs have not yet shown up in the figures and second:
The biggest upward pressure on inflation came from petrol prices, which fell by less than a year ago, and there was some effect from dearer computer games too.
So what does all this mean?
First the fall in factory price inflation. Home grown factories tend to manufacture consumer or discretionary goods which is the stuff you buy with the money left over after the bills have been paid. The fact that prices for these goods is static or falling reflects the fact that bills that have to be paid are taking up a bigger and bigger proportion of take home wages- manufacturers cannot put up prices or people will stop buying even at todays depressed levels.
On the other hand non discretionary resource prices , including energy are continuing to rise with no forseeable drop off in the near future.
We can see more clearly one aspect of the new restructured economy- The End of the Consumer Society, at least for a large proportion of the working population. From now on wages will be devoted to paying for neccessities and making the payments on all those credit agreements you took out to get the other stuff you need.
Secondly, we can see that inflation is becoming less and less descriptive of what is happening in the economy for a majority of the population. This falling rate of inflation does not indicate that things are getting better or that the ‘squeeze’ on ordinary households is getting any less. What it means is that consumer ‘luxuries’ are being permanently squeezed out of their budgets.