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.

Jerome Powell
US Federal Reserve governor Jerome Powell: is inflation really transitory?
(Image credit: © Drew Angerer/Getty Images)

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.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

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

Sign up
Merryn Somerset Webb

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.