I've been participating in a Channel 4 live blog about savers and the miserable rates of interest they are getting on their cash.
The Bank of England's deputy governor, Charlie Bean, says that savers who don't think they are getting enough interest on their cash should keep their consumption up by spending their capital instead. Savers, obviously, find that a pretty unpalatable solution to their problems. They wonder if a better solution might be for the Bank of England to note that inflation is far, far higher than 2%, and to put rates up.
Sadly, that isn't going to happen. What we are seeing in the UK economy at the moment is a sustained effort to engineer nominal property price stability. Why? Because sustained property price falls and their knock-on effects through consumption to the rest of the country are currently considered to be just too damaging to our still-fragile financial system. But while everyone is worrying about deflation, it is entirely possible that this price stability (or the effort to create it at least there is no guarantee that it will work) will come at the cost of inflation in pretty much everything else.
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 idea, for what it is worth, is that at this point in the cycle, price inflation won't lead to wage inflation. That's because, with unemployment so high, only the very unionised think they stand a chance of wage rises any time soon. The net effect, then, is real wage deflation for most British workers, something that obviously makes them poorer. We are supposed to accept this without complaint on the basis that being paid less in real terms makes us more competitive on the world stage and hence more prosperous in the long term.
That might or might not be the case (it is worth noting that similar arguments have been used to defend sterling depreciation and worker impoverishment for decades). But I wonder, if everyone understood the price they were paying for the government's attempts to avoid a house price crash,whether they'd be altogether happy.
-
Water companies blocked from using customer money to pay “undeserved” bonusesThe regulator has blocked three water companies from using billpayer money to pay £1.5 million in exec bonuses
-
Will the Bitcoin price hit $100,000?With Bitcoin prices trading just below $100,000, we explore whether the cryptocurrency can hit the milestone.
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
