Not everyone is worried by the recent rise in inflation. Mervyn King still stands by his view that it is just a blip - a long blip, but still a blip.
See alsoUse your mortgage to beat inflation
And homeowners across the country are welcoming it with mutterings about how it will erode the value of their debt, making it less of a burden on them in the future.
Big mistake. Inflation may erode the real value of the debt in theory. But it can't reduce the monthly burden of the debt unless wages are rising too. And they are not. We already know that the new government is planning a freeze on all public sector salaries above £100,000. But it isn't just the very well paid who are likely to see their nominal wages stay static and their real wages fall.
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 retail price index may now be rising at over 5% a year, but can you really see the tax-paying public agreeing to nominal wage rises of 5%-plus for any public sector workers? I can't. And that suggests that real wages for the millions of people dependant on public sector cash are on the way down, not up.
The same goes for the private sector. With unemployment high and rising, there is little pressure on companies to offer higher wages than they already are. And the stats tell us pretty clearly that real wages in the private sector are coming down too.
So what is inflation actually doing for today's debtors? Increasing their cost of living (via rising oil prices and food prices) and leaving less money for interest and debt payments. So the higher it goes, the more of a burden the debt becomes not vice versa.
It might work the other way around for the corporate sector, if they get to raise prices while keeping real wages down. But if you've over-extended yourself on your mortgage and credit cards, don't make the mistake of thinking that today's inflation is in any way your friend. It isn't.
-
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.
