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Comment: Inflation and the real economy
Evening Standard15 Jul 2008
The succession of bleak economic statistics right now must seem to the Government to be almost endless. One, however, is bleaker than most: the news that factory gate inflation - the prices charged by manufacturers for their goods - has reached double-digit figures for the first time in 20 years. What this means is that there will be even greater pressure on shops to increase prices, which means in turn higher consumer price inflation, the measure the Bank of England uses to determine the official inflation rate - and the interest rate. Certainly the figures for June, which are published today, will reflect the large increases in food and fuel prices last month - economists estimate the rise will be even higher than May's 3.3 per cent increase. That is significantly above the Bank's official target of two per cent. And most families, faced with an estimated increase of a fifth in the prices of basic foods over the past year, will look for higher wages to compensate.
In these circumstances, there will be a receptive audience for today's proposals from the Tory leader, David Cameron, to ease pressure on companies that find themselves faced with insolvency, part of a wide-ranging attack on the Government's economic record. He suggests introducing aspects of the US Chapter 11 insolvency rules, which would, at the least, give struggling companies a breathing space in which to restructure and come to terms with their creditors.
This is part of a two-pronged attack by the Tories on Labour's record - today, the Shadow Chancellor, George Osborne, attacks the Government's inability to deal either with economic failure or with social breakdown. The problem now, as the director of the Institute for Fiscal Studies, Robert Chote, points out, is that the Tories' scope, if elected, to help individuals and companies through tax cuts is now severely restricted by the downturn. The Tories have an easy task in attacking Gordon Brown's reputation for economic competence: spelling out the alternative is the hard part.
