Money
Paul Lewis on the web
Inflation hits 18-year high
The necessities of life don't get much more basic than meat and drink, bread and potatoes, gas and electricity, transport and clothing. But it is the rising cost of all those essentials which has driven inflation to its highest level since July 1991 – when poll tax protesters were being jailed and Pavarotti sang to 100,000 people in Hyde Park, writes Paul Lewis
The retail prices index (RPI), which has measured inflation since World War II, reached five per cent in July this year. The highest since July 1991. Then it was falling. Now it is rising. You have to go back another three years to August 1988 to find the last time RPI inflation rose through five per cent. And it didn't stop then until it got to nearly 11 per cent in the autumn of 1990.
I am sorry to be banging on again about inflation. But it is nearly two years since I sounded a warning bell and believe me I am not pleased to have been so right. This will not be the last time we have to look aghast as inflation hits a new high. Yes, the price of oil is now falling and that gives a small respite at the petrol pumps. But, er, that's it. There is no more comfort to be had. Other figures published this week by National Statistics show that manufacturers are raising their prices by more than 10 per cent a year, putting further pressure on retailers to increase what they charge us. And manufacturers themselves are paying soaring costs for raw materials. Including fuel, they are up more than 30 per cent on 2007. So there is a lot more inflation stored up for the future.
It is not just in the UK that inflation is being stored up. I have been to China this summer and was surprised to find that a major preoccupation there, outside the Olympics, was inflation. It has risen to 7.1 per cent, boosted by rising wages and personal incomes. That means the end for us of cheap imported goods. The world's biggest factory will still make most of the things we use. But the prices charged will inevitably follow wages on the upward path demanded by the aspirations of the Chinese workers.
In the 20 years since 1988 the economy has gone global. That leaves the Bank of England and the UK Government powerless to control inflation which will take action on a global scale. And even if that happens the price of vegetables in a small island off the west coast of Europe is not going to be top of anyone's list. Time to order a tighter belt, I think.
* Written by Paul Lewis, editor of Saga Magazine's Money News section and the presenter of BBC Radio 4's Moneybox. Paul's opinions are his own and for general information only. Always seek independent financial advice.
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