Inflation or deflation?

I’ve been meaning to do a blog on inflation for a while now, but what do you know, Colin Foster has already written a piece at the Workers’ Liberty site that sums up the current hard times in old England:

Lower inflation? Not in the supermarkets

Food prices are still rising at a rate of 10% per year, according to official figures reported in the Financial Times on 18 February.

For months now, economists and the press have been predicting outright deflation – a fall in the average price level – for 2009. Prices of some staple industrial inputs – oil, gas, wheat, metals – have already gone down a lot, and the “70% off”, “50% off”, and “30% off” signs in shop windows do indicate some falling prices.

Clothing and footwear prices, for example, went down 10% between January 2008 and January 2009.

But day-to-day staples are still getting more expensive. Bread and cereals, by 10% a year; milk, cheese, and eggs, by 9% a year; coffee, tea, and cocoa by 16%. Although oil prices in the global markets have gone down, retail prices of electricity, gas, etc. are still up 36% over the year.

The real inflation rate for poorer households still remains high. And it could remain high even if overall average price levels fall.

We could face a double hit. Price falls on industrial goods and more expensive consumer goods – the sort of thing you might buy once in a while, or maybe not buy at all – tend to kill jobs. Consumers tend to postpone the expensive purchases, thus depressing market demand, and firms tend to postpone investment, in both cases because the postponement is likely to bring you a better bargain. And firms’ outstanding debts become heavier and heavier in proportion to the income from which they cover those debts, so more firms go bust.

But that sort of deflation, killing jobs, could go together with inflation in the prices of daily staples.

The case for the unions compiling a working-class cost-of-living index, and pressing for wage settlements which beat inflation even for the poorest workers, remains strong. It is even stronger because the push-out-the-cash policies pursued by central banks to try to prevent or limit deflation may well fuel rapid general price inflation at the next turn in the road, a year or two years down the line.

The trend will be for employers to push for pay freezes at best and cuts at worst – the argument that it’s better than being redundant will work with many fearing for their jobs.

Energy bills are supposed to be coming down in the short term, but will be higher in the long term. Which won’t help the govt’s stated aim of eradicating poverty amongst pensioners…

As for the government’s finances, public debt has doubled overnight!

Don’t worry, Gordon hasn’t bought a house for Jacqui Smith – it’s just the bank bailouts are being counted as part of the national debt.

Talk about inflation…

Two million unemployed now, three million unemployed later?

The Left Economics Advisory Panel reacts to the latest bad economic news:

Unemployment figures released today show that more than 1.92 million people were out of work by the end of November 2008. This figure is the highest since the year Labour came to power in 1997.

John McDonnell MP, LEAP Chair, said:

“On this basis, unemployment today is over two million. This is a depression not just a recession, and the Government’s measures have failed to protect people and preserve their jobs.

“A lack of planning and radical action makes it almost inevitable that unemployment will hit 3 million with the consequent human suffering.”

Graham Turner, author of The Credit Crunch and LEAP economist, said:

“The remorseless rise in unemployment continues and looks set to accelerate sharply in 2009. In addition to the job cuts, workers are seeing their pay squeezed. Average earnings growth slowed again in November to 2.7% y/y, the lowest increase since February 2003, and well below the headline inflation rate of 4.1% for that month. Real earnings continued to fall”.

“And the recession continues to take its toll on the public sector finances, with the current budget deficit rising from £25.9bn in the year to November, to £33.3bn in the year to December. The rate of deterioration in the deficit number is accelerating.”

Women workers will be hit especially hard by this recession, compared to the last one, reports the TUC:

During the downturn women’s redundancy rate has increased more quickly than the male rate. From January – September 2008 the female redundancy rate increased by 2.3 percentage points, almost double the rate of male increase (1.2 percentage points). It remains to be seen whether this trend will continue, leading to an even higher rise in the redundancy rate for women, or whether it will now level off to the same rate of increase as men.

TUC General Secretary Brendan Barber said: ‘This is going to be an equal opportunities recession. Job losses in sectors where men predominate such as manufacturing and construction are now being balanced by job losses in retail and hospitality where more women than men work.

“But job losses among men are still more likely to hit the headlines as women tend to work in smaller workplaces where redundancies go unnoticed by the media.

“But with so many households absolutely dependent on women’s wages the Government must ensure that women benefit in full from programmes to help those facing redundancy and the long term unemployed.”

Yesterday’s Guardian had a letter signed by Labour MPs, trade union leaders, and anti-poverty campaigners, calling on the government to increase Job Seekers’ Allowance by 15 pounds a week:

A single person over 25 years old receives £60.50 per week, dropping to £47.95 for those under 25. The UK is near the bottom of the western European league table in comparative rates of unemployment benefit.

The gap between benefits and earnings has widened significantly over the past 30 years because jobseeker’s allowance (JSA) has increased at a rate below inflation. If it had increased in line with earnings, an unemployed person would receive in excess of £110 per week.

Politicians and government advisers argue that higher benefits would be a disincentive to work, but a wealth of evidence suggests that the descent into poverty has been a greater cause of economic inactivity. Benefit rates must be high enough to allow people to live a healthy lifestyle for physical and mental wellbeing. To achieve this, our long-term aim must be to substantially improve the miserly rates paid at present.

The government has rightly made a priority of increasing demand to maintain employment at as high a level as possible, and recognised the importance of measures that will have a speedy impact. Unemployed people, because of their low benefits, are particularly likely to spend any increases they receive as soon as they receive them – pound for pound, raising JSA levels will do more to fight off the recession than any other fiscal stimulus.

The Morning Star gets to The root of the problem:

THE most misleading statements that any government makes regard the problem of unemployment.

Certainly, unemployment is rising at an appalling rate and, given that the figures released on Wednesday relate to the quarter to November, the jobless count is undoubtedly over 2 million now.

And that only relates to those who the government hasn’t managed to sweep under the administrative carpet by reclassifying them, sticking them on makeweight, irrelevant courses in jobseeking or otherwise losing them in the flurry of apparently contradictory figures.

Include them and the jobless figure could easily double.

Add on those who, when they become unemployed, are immediately expunged as being too near retirement to count, allow for those who are forced into McJobs at insulting rates of pay and do not use the skills that they have acquired over a lifetime of work and you could probably double that figure again.

Manufacturing jobs are vanishing at an alarming rate, with 86,000 disappearing in the last quarter.

Around 225,000 people became redundant across the economy in the same period and almost every indicator shows that Britain is not in a recession but a full-scale depression, as MP John McDonnell has pointed out so clearly.

The misleading element comes in several guises. When Employment Minister Tony McNulty attempts to harangue young people about the “half a million vacancies that are available right now,” he fails to add that they are out there because they are either not in the same places as the jobless, do not match their skills profile or are so appallingly badly paid that only the starving and desperate would touch them with a bargepole.

He also fails to point out that, even taking government statistics as gospel, there are now over four people unemployed for every vacancy and that employers are seizing the opportunity to downgrade wages even further.

Nor does anyone in government admit that its disgraceful neglect of the state pension has driven hundreds of thousands of pensioners to continue working past retirement age since that is their only way to keep body and soul together, which cuts job availability even further.

But the worst misinformation is the statement that unemployment is the root problem.

Quite simply, it is most certainly not. It is an effect, not a cause. At the centre of the problem is the lack of finance for business due to the disgraceful conduct of the banks in clamping down on lending so far that it is strangling the economy and any chance of recovery.

And right at its heart is a government which refuses to force the banks into compliance, despite the fact that they are now largely owned by the taxpayer.

As GMB general secretary Paul Kenny acutely observed: “Putting taxpayers’ money into the banks is not working in terms of getting that money to companies. A change of approach is urgently needed to save job losses in the pipeline.

“The government must take control of the banks already in state hands and use them to do this job.

“The lesson has to be learned quickly that banks are just another public utility that the economy requires to function effectively.”

Mr Kenny, we really couldn’t have put it better ourselves.

Mayor’s unfair fares

From Progressive London:

Boris Johnson’s New Year hangover for the capital- “Mayor hits Londoners in the pocket with fares rise”

Thursday, 01 January 2009 14:18

Tomorrow’s fare increase in London, which will see an above-inflation increase of six per cent overall and the price of a single bus journey on Oyster go up by eleven per cent – has provoked strong criticism from a cross party group. “At a time of financial crisis the Mayor should be helping Londoners by holding down fares and investing in key public services like transport – he is doing the opposite, hitting ordinary Londoners in the pocket,” said MP Jon Cruddas, former Mayor of London Ken Livingstone, Assembly members Len Duvall, Jenny Jones, Darren Johnson, and Val Shawcross, and Steve Hart – regional secretary of transport union Unite, in a joint statement.

They called for the fare increase to be reversed and criticised the loss of millions of pounds of income for Transport for London since Boris Johnson became mayor which could have been used to avoid the painful rise.

In their statement the cross-party group said:

“The Mayor of London plans to raise fares by six per cent, with some increasing far more: the price of a single bus journey on Oyster will go up by 11 per cent, to £1.

“Yet at the same time the Mayor has cancelled investment to improve the city’s transport system, and is throwing away millions of pounds by cancelling measures like the planned £25-a-day charge on the worst-polluting cars, like Chelsea Tractors, in central London and taking one of the richest parts of London, Kensington and Chelsea, out of the Congestion Charging Zone.

“At a time of financial crisis the Mayor should be helping Londoners by holding down fares and investing in key public services like transport: he is doing the opposite, hitting ordinary Londoners in the pocket.

“We demand that this January’s above-inflation fare increase be cancelled.”

Balls to a living wage, says Labour

Ed Balls talking balls:

THE CHILDREN’S Secretary, Ed Balls, last week attacked the concept of a London living wage, which is currently set at £7.45 an hour as the recommended minimum wage needed for survival in the capital.
The idea was introduced by former London Mayor Ken Livingstone in recognition that living costs in the capital – especially housing – are significantly higher than in most other places and that the minimum wage level, which at £5.73 is too low anyway, is totally inadequate in London.
Livingstone’s successor Boris Johnson has also declared his support for the London living wage and has promised it will be paid to all staff employed by the Greater London Authority and Transport for London. It has already led to the promise of a big pay rise for thousands of cleaners on the London underground from next year.

artificial

Now Ed Balls is claiming that it would be “artificial, inflationary” and not “necessary or appropriate”.

“An artificial ‘living wage for London’ could distort labour markets and prove poor value for money. Moreover, in seeking to reflect perceptions of the cost of living, this proposal could also raise inflation expectations at a time when increased vigilance is needed on inflationary risks. We do not believe it is necessary or appropriate.”
Ball’s stance has attracted criticism from poverty charities, businesses and unions representing low-paid workers for the government’s stance on the London living wage.
Mark Donne, the director of the Fair Pay Network said: “It is extremely disappointing, particularly from a children’s minister, yet perhaps not entirely surprising that such senior government figures have taken this view on the living wage. “The London living wage is extremely popular with the London electorate and cities such as Oxford, Norwich and Leeds are keen to follow suit.
“In both the moral and business cases, the national minimum wage, and indeed the living wage where implemented have lifted low paid people from poverty and bolstered local economies.”
The network represents charities ranging from Oxfam to the Child Poverty Action Group and the TUC.
Guy Stallard, the director of facilities for the management accountants KPMG, a company that employs more than 123,000 people, said: “We have found that paying the living wage is a smart business move as increasing wages has reduced staff turnover and absenteeism, whilst productivity and professionalism has subsequently increased.”
Dave Prentis, the general secretary of Unison, which represents 1.3million workers in public services, said: “A shocking 40 per cent of London’s children live in poverty, which means that millions of families in the city are struggling to make ends meet. The London living wage is a real opportunity to help these families cope with the high cost of living in the capital – and Ed Balls is only going to make their situation worse with his attack on decent pay.”

obscene

A spokesperson for Boris Johnson said: “If the government is serious about tackling the capital’s obscene levels of poverty and deprivation, then it would join me in urging all London employers to accept the London living wage as the basic pay rate.

“London is one of the most expensive cities in the world to live and work and it is not only morally right to pay the living wage but also makes good business sense, contributing to better recruitment and retention of staff, higher productivity and a more loyal workforce with high morale.”

It would appear that the Greens are redder than Labour when it comes to the living wage:

Green Councillor Jenny Jones has successfully passed a motion to make Southwark Council a Living Wage employer, at a full Council meeting on Wednesday 5th of November

The motion commits the Council to paying all staff, including sub-contracted staff, the London Living Wage and to use local strategic partnerships and other private sector engagements to promote the living wage more widely. Proposed by Green Councillor and London Assembly Member, Jenny Jones, the motion passed with support from Labour, despite hostility from Lib Dem Councillors.
Southwark is only the second Borough to adopt official policy backing a Living Wage, with Lewisham being the other where there are 6 Green Party Councillors.

The Living Wage is the real minimum rate of pay that enables a worker to provide a decent standard of living for themselves and their family. In London, the Living Wage currently stands at £7.45 per hour. The background to this figure can be found in the document, A Fairer London: The Living Wage in London (GLA 2008). Many service sector workers – including cleaners, security guards and catering staff – experience low pay and difficult, sometimes exploitative working conditions. It is estimated that in London alone 400,000 people fall into this working poverty trap.

Jenny Jones stated, “The Green Party has supported the London Living Wage from the outset and will continue to fight for all organisations to ensure that their staff are not receiving poverty pay.”

Harrods on strike?

From the Financial Times, a sign of the times:

Harrods, one of the world’s most famous shops, faces the prospect of a summer strike during the height of the tourist season after workers began balloting for industrial action on Monday.

Unite, Britain’s biggest union, is balloting more than 230 maintenance workers, engineers, drivers and warehouse staff in a dispute over pay and holiday entitlements.

Debbie McSweeney, Unite regional officer, said: “The world’s most famous store faces a very expensive strike. Our members keep Harrods running; they ensure the lights stay on, the building operates safely and shoppers can get about the store. It is difficult to imagine how the shop could function properly without them.”

The union wants Harrods to improve on a “below inflation pay offer” of 3.5 per cent and give maintenance staff and other workers two extra days’ leave, the same as the company has “given to shop floor staff”.

Unite said last week that the offer for extra holiday entitlement was broadcast over the shop’s loudspeaker system. It said on Monday: “It is very worrying that those workers who were not given two extra days’ holidays are in a recognised union, while the shop floor workers who got the extra leave do not have a recognised union.”

UK in recession, OK?

A report by Bank of England governor Mervyn King on the future of the economy seems to have started a run on the pound.

So we can take it that the news isn’t good for the bosses.

We know it isn’t good for us: unemployment up, inflation up, repossessions up…

A crisis that’s made in Britain
Communist Party general secretary Robert Griffiths analyses the economic crisis in Saturday’s Morning Star

The recession starting to hit workers.

AS Britain’s economic growth ground to a halt in the second quarter of 2008, Establishment pundits and politicians became obsessed with official figures and targets.

Can the consumer price index be brought down nearer to the government and Bank of England’s inflation target of 2 per cent?

Will gross domestic growth figures for the next two quarters reveal that economic activity in Britain is actually shrinking and that the economy is therefore technically in recession?

The labour movement and the left should not be sucked into this superficial charade. For millions of people, the recession is already well and truly under way.

We are witnessing the biggest onslaught on working-class living standards since the early days of the Thatcher regime nearly 30 years ago.

Unemployment is rising faster than any time since the late 1970s. The official figure stands just shy of one million, but the real figure is nearly double that. The merciless drive to force the long-term sick and incapacitated off benefits and into low-paid work or destitution will increase the misery, while disguising the full extent of further rises in unemployment.

Pay is increasing by no more than 2.5 per cent a year in the public sector and no more than 3.5 per cent in the private sector. The national minimum wage and state pensions and benefits are lashed to the consumer price index.

Meanwhile, food prices are on average 14 per cent higher than this time last year, the biggest jump since 1980. Basic foodstuffs such as bread, potatoes, chicken, eggs, margarine and butter have all shot up in price by between one-third and a half. Motor fuel is up by a quarter.

Domestic gas prices have gone up by one-third so far this year and electricity by one-quarter. That’s 10 times more than any increase in wages, pensions and benefits.

The real annual rate of inflation for many people in Britain is at least 30 per cent.

Yet the government, the mass media and the Bank of England tell us that, according to the consumer price index, the cost of living is only growing at 4.4 per cent a year. Even the retail price index, which includes housing costs, puts it at a mere 5 per cent.

Why such a huge discrepancy between the fantasy world of government, business and media statisticians, on the one side, and the real world of working class and some middle-class people on the other?

The official indices consider yearly price changes for a “basket” of household expenditure items, each item given different weight according to its prominence in the typical household budget.

According to the latest CPI presumptions, the “typical” household in Britain spends just 10 per cent of its outgoings on food, 3 per cent on gas and electricity and 4 per cent on motor fuel. These are the areas where most of the biggest increases have taken place – but their impact in the “typical” CPI household has, not surprisingly, been negligible.

Mr and Mrs CPI, on the other hand, are keen to buy the newest car and audio visual equipment, go to the opera, eat out frequently and pay young Jemima and Jocelyn’s school fees. So they spend 5 per cent on vehicle purchases, 14 per cent on culture and recreation (excluding pubs and clubs), 2 per cent on education and 11 per cent in restaurants and cafes (but not canteens).

These are areas where many of the smallest price increases have occurred over the past 12 months compared with previously. So, hey presto, the cost of living in Britain has only gone up by 4.4 per cent.

Either government ministers know the extent of this deception, in which case they are fraudsters, or they do not, in which case they are ignorant fools who cannot begin to represent the interests of workers and their families.

The reality is that new Labour primarily represents the interests of big business. This government has orchestrated an Indian summer for the spivs, swindlers and speculators.

Whether in the City, oil, gas, electricity, water or supermarket retailing, the transnational corporations have been permitted, indeed actively encouraged, to make monopoly super-profits.

The kind of creature who flourishes under new Labour is not the hospital worker, the engineer, the carer nor even the small shopkeeper.

Step forward Crispin Odey, senior partner at hedge fund Odey Asset Management.

He has had a successful year trading in food commodity contracts, with no interest in providing food to anyone, and “borrowing” building society shares to sell and then buy back at a profit in a falling market, “shorting” in City jargon.

For performing such socially useful work, he has just helped himself to £28 million in fees and salary.

However, the boardroom chiefs at Britain’s banks do not have the competence to match their greed. They are turning last year’s record profits into this year’s losses, as the sky darkens with chickens coming home to roost.

Not even £100 billion of public money – or £150 billion, if they have their way – will save them all from a “credit crunch” largely of their own making.

Maintaining demand in the economy through private and public-sector borrowing was never going to create Gordon Brown’s “new economic paradigm,” abolishing the fundamental capitalist law of boom and bust.

This policy postponed a periodic crisis of overproduction, when capitalism can no longer sell all or even most of its goods and services at a profit. But it did so in a way which makes the recession all the sharper when it comes, because spending power based on credit collapses more quickly.

At the same time, the banks strive to maintain high interest rates to shore up their income, corporations which had borrowed for expansion seek to maintain high prices to meet their interest payments and a government which refuses to tax the rich and big business has to tax the rest of us and squeeze public-sector pay.

So, economic demand continues to fall and unemployment increases, while interest rates and prices remain relatively high – a repetition of the “stagflation” of the early 1980s.

Although international factors have exacerbated this crisis of the British economy, they did not create it. New Labour’s culpability is far greater, having also allowed manufacturing industry to decline as Britain became overdependent on the financial sector.

Only a left-wing programme can mitigate this crisis in the interests of the working class.

Price controls need to be imposed on household fuel, petrol and basic foodstuffs. A windfall tax on the energy and retail monopoly profits would boost public investment – for example, in council housing and solar panelling – and employment, without adding to the government’s net borrowing deficit, which soared to a record £24 billion last quarter.

Taking gas, electricity and railways out of the hands of profiteering extortionists would be more popular today than it was in the late 1940s.

We need unions to lead a big wages offensive for increases which meet the real rate of inflation. The TUC should demand negotiating rights on the national minimum wage, as the labour movement and the left join campaigning organisations in a fight for higher pensions and benefits and the return of subsistence grants.

Finally, the ideological battle must be waged with greater clarity and vigour.

The “free market” is dominated by monopolies who rig it in order to maximise their profits. It is a market which sucks in huge sums of public money in loans, subsidies and contracts, including the private finance initiative, as a vital source of shareholder profit.

And capitalism remains a system of insecurity, periodic crisis and mass unemployment based on exploitation, oppression and inequality.

Two jumpers or a windfall tax

That’s the choice.

Say, public sector workers are being asked to take a cut in a supposed effort to curb inflation – why aren’t the shareholders of the energy giants doing the same?

Tax the energy giants and cut fuel bills
Corporations make billions while our fuel prices rise over 20 percent, writes Sadie Robinson

Millions of people across Britain are struggling with soaring household energy bills. The government could act to ease the pain by taxing oil and gas firms, or imposing a limit on price rises. Instead it refuses to do anything that would harm profits.

EDF Energy raised its prices again last week – by 22 percent for gas and 17 percent for electricity. On average EDF customers have seen their bills rise by over 33 percent since the start of the year. British Gas customers have seen their gas bills rise by 77 percent and electricity bills by 74 percent since 2003.

These energy companies claim that rising costs are forcing them to raise prices. But in fact they are using rising commodity prices as an excuse to rake in the profits.

This week oil giant BP reported that its profits for the first six months of the year had increased by 23 percent to £6.7 billion.

British Gas, due to announce its profits on Thursday, expects profits of between £100 and £200 million. In 2007 it raised prices to boost its profits by an obscene 500 percent.

Centrica, the parent company of British Gas, expects to announce pre-tax profits of £880 million for the first half of this year.

In sharp contrast to these riches, over 4.5 million people in Britain are already living in “fuel poverty” – spending more than 10 percent of their income on energy. This figure is set to rise by a staggering 50 percent as energy companies keep raising prices.

Ordinary people also face rising debt just to stay on top of the price rises. Around 6.8 million households in Britain are in debt to their energy supplier. Total personal debt is now rising by an average of £1 million every five minutes.

It may be the height of summer, but already people are worrying about how they will survive the coming winter.

Fuel poverty leads to the deaths of between 20,000 and 50,000 people in Britain each winter. Over one in three pensioner households are expected to be in fuel poverty by the end of the year.

Centrica’s managing director Jake Ulrich – who receives a salary of £1,033,000 a year – admits that fuel price rises are “going to hit people hard”. Fortunately he has advice for how people can soften the blow – they should wear “two jumpers instead of one”.

The bosses and the government are completely removed from the reality of life for ordinary people.

The government votes to keep lavish expenses for MPs – but it refuses to implement even the most minor measures that could limit the hardship faced by ordinary people.

The parliamentary business and enterprise committee has investigated the energy market in light of the current crisis.

But its conclusion is that the market is not functioning efficiently enough and that we need more “liberalisation”.

In the face of the massive political crisis that Gordon Brown now faces, some argue that he is simply a victim of a global economic recession that is pushing up the cost of living.

The massive unpopularity of New Labour following the wars in Iraq and Afghanistan and its constant neoliberal attacks on working people is conveniently forgotten. Brown is portrayed as powerless in the face of the global economy.

Response

It is true that energy and food price rises are fuelling anger with the government. But what people are really angry about is the government’s response.

Brown is not powerless. There are many things he could do to ease the burden on working class people. He could implement a windfall tax on the energy companies. He could increase corporation tax. He could impose a limit on the amount that firms can raise energy prices.

But instead of this New Labour has repeatedly cut corporation tax, which currently stands at just 28 percent.

The People Before Profit Charter puts forward demands that would stop ordinary people sinking deeper into poverty.

As well as the demands to tax corporate profits, the charter calls for an end to Brown’s 2 percent pay limit on public sector workers, the abolition of tax on fuel and energy for old people and the poor, and the restoration of the link between state pensions and average earnings.

New Labour is doing none of these things because it defends the interests of the rich and business.

Making sure that workers don’t pay for the crisis means building resistance on the ground. The People Before Profit Charter can help mobilise that resistance.

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