With the right political will, inflation can be defeated
Governments and central banks can easily control inflation, says Merryn Somerset Webb – they just need the will.


The latest numbers on UK inflation are out; the consumer price index is rising at 3.2% a year. That’s pretty nasty, but look to the US and you will see something nastier: there, prices are rising at 5.3%. We haven’t seen these kinds of numbers in the West for decades. You might think they aren’t much to worry about – the various economic distortions caused by the extraordinary policy response to Covid-19 were hardly going to just fade away, and the meeting of supply constraints with unlimited money printing was always going to have consequences – but it is perfectly reasonable to think they will work through the system and we will soon be back to our old mildly-disinflationary normal. This bout of inflation, our central bankers say, is “transitory.” Are they right?
The jury is obviously still out, but it is looking less transitory by the minute. In this week's magazine, Philip Pilkington argues that real long-term inflation is usually driven by labour shortages. We definitely have those: there are well over a million job vacancies in the UK. And it is no good trying to blame that on Brexit – there are labour shortages everywhere. In the US, there are ten million-plus job openings (many more than there are jobless people) – nearly four million more than pre-pandemic. Half of US small firms are hiring; of those, 60% say they can’t find qualified applicants. Around 50% are raising prices – presumably in part because they are having to raise wages to get staff. Explanations vary: school closures have forced parents to stay at home with kids; lifestyle preferences have changed; vaccination mandates have locked people out of career paths; and perhaps pandemic savings have allowed some to opt out of work or to retire early.
There is also, as Philip notes, fear: in the UK, 42% of people still say they are “very” or “somewhat” scared of catching Covid-19 (YouGov). How much might you have to pay someone scared to come to work, to come to work? How much might you have to pay someone who doesn’t want a vaccine to get one in order to work? And how much might you have to pay someone who has decided they are happy to forgo a lot of their pre-pandemic consumption habits in order to stay out of the labour market? Add this dynamic to ongoing supply disruption (it doesn’t seem to be working itself out in a hurry), and the fiscal stimulus still being offered by governments, and if I were forced to choose a word for today’s inflation, I might ditch “transitory” for “persistent.”
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The good news is that governments and central banks can easily control inflation: they can pull back from creating endless demand via vast public spending programmes financed by binge money-printing and they can raise interest rates. Inflation is then mostly a function of their policy decisions (or lack of). The bad news is that those decisions are really hard to make. Who wants to be the one who reneges on “build back better” promises, or who drives businesses into bankruptcy and homeowners into default with sharp rate rises? You need brave governments with eyes to the long-term greater good for that, and I’m not sure we have those.
This matters. According to the Financial Conduct Authority, 8.6 million people have more than £10,000 in cash savings. With interest rates stuck close to zero and inflation over 3%, those cash pots lose value every day – and are likely to continue to do so. They need protecting. How? Some of the answers are in this week's magazine.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
Which investments can I hold in a stocks and shares ISA – and which ones are banned?
HMRC has a list stating which investments are allowed in ISAs, but sometimes investors, and even ISA providers, get confused by the rules. Here’s what you need to know when picking your investments.
By Ruth Emery
-
Review: Andronis Minois and Andronis Arcadia – two Greek island idylls
Travel Andronis Minois on Paros and Andronis Arcadia on Santorini are two beautiful, authentic hotels on two different islands in Greece
By Nicole García Mérida
-
'Rachel Reeves' plan to force pension funds into UK assets won't work'
Opinion Hustling pension fund cash into British assets sounds like a good idea. It would be better to make Britain an attractive place to invest, says Matthew Lynn
By Matthew Lynn
-
Supersonic travel: How China could 'leapfrog' US and Europe's commercial aviation industry
Opinion Innovation in commercial aviation has been stuck for 60 years. A commercial supersonic jet might be back on the market soon, but will China get there first?
By Matthew Lynn
-
How British businesses can tackle Trump's tariffs
The majority of British businesses are likely to take a hit from the chaos caused by Trump’s tariffs to reorder global trade. Companies in the firing line face some difficult decisions, says David Prosser
By David Prosser
-
Trump wants to colonise Mars – will it happen?
Donald Trump wants to plant the US flag on Mars. Could humans really live there?
By Simon Wilson
-
Why are energy bills so expensive in the UK?
Electricity bills in the UK are higher than in any comparable rich country. Some blame the net-zero zealotry of the government for that. What is really to blame for high energy bills?
By Simon Wilson
-
Will Putin invade Europe? Why investors know Russia is a paper tiger
Opinion Markets are right to ignore talk of Putin invading Europe, says Max King.
By Max King
-
Why French far-right leader Marine Le Pen has been banned from running for office
Marine Le Pen, presidential candidate and leader of France's right-wing National Rally party, has been barred from standing by the country's judges.
By Emily Hohler
-
Five years on: what did Covid cost us?
We’re still counting the costs of the global coronavirus pandemic – and governments’ responses. What did we learn?
By Simon Wilson