Wednesday, 15 June 2011
Unemployment, inflation and Wales
The announcement of today’s modest drop in unemployment is a very small ray of sunshine in what otherwise is a pretty bleak economic scene.
In Wales unemployment has dropped by 9,000 (0.7%) on the quarter to 115,000 (7.9%), which is 10,000 lower than the same period last year. Although worryingly the claimant count has risen by 1,700 in the past month to now stand at 72,400.
These figures may only just be a small respite before the Public expenditure cuts really start to bite. Against such a background Carwyn Jones’s Legislative programme seems worthy but totally inadequate to deal with the economic realities facing most Welsh people.
Many may argue that the Welsh Government haven’t really got the economic powers to deal with the systemic problems of the Welsh economy. True, but there does seem to be a marked reluctance on our First Ministers part to grab the fiscal powers the Westminster government are prepared to devolve to Scotland and Northern Ireland. Let’s hope that he has a change of heart before he gets on his feet to make a statement next week.
Delivery is the key word on the lips of most politicians. Carwyn Jones is even going to establish a delivery unit, whatever that may be. So let’s hope that he delivers on fiscal powers.
Another who has failed to deliver is Mervyn King or as we must now learn to call him Sir Mervyn. How would the Bank of England fare if a delivery unit measured their performance? No gold stars here, methinks, for their delivery in dealing with inflation.
According to the Office for National Statistics the latest figures for the UK Consumer Prices Index shows inflation again running at 4.5% or if you take in the Retail Price Index of inflation, which includes mortgage interest payments, it is running at 5.2%.
Now the Bank of England has set the target for inflation at 2%. The latest figures show the rate running at twice this amount. Now this target has been missed not once but 34 times in the last 40 months. If punters put their shirts on horses with the same degree of success, the M&S men’s wear department would be experiencing an unprecedented growth.
What’s the Bank’s response to this? Well, precisely, nothing. Why? I hear you ask, because they can’t risk affecting the recovery. Preventing the economy dipping into recession is the only game in town. So interest rates will be kept at these historic low levels for much longer than is prudent for the economy and the most effective tool in the armoury of countering inflation – raising interest rates – is not to be deployed. The unemployment figures although welcomed do not indicate any great growth. So the Bank will give us more of the same.
Now who will suffer with interest rates being kept at a record low of 0.5% for the 27th month in a row? Well, as Cilla Black would say surprise, surprise it’s the poor. So, nothing new there, then.
According to the Institute of Fiscal Studies, people on low incomes have suffered higher inflation than those on higher incomes in the past decade. The IFS reckons that pensioners on state benefits had been especially hard hit.
It doesn’t take an Institution to tell us why. For only the relatively better off owner-occupier have benefited from the lower mortgage rates courtesy of the Bank of England’s low interest rate policy.
So the relatively rich are better off but the poor suffer because of the Bank’s inaction on inflation. It was always thus. People on lower incomes who spend a higher proportion of their money on gas, electricity and food will have suffered disproportionately because of the sharp rise in these essential items.
The question for the Welsh Government is this, if Sir Merv and his Bank of England continue with their current policy how will Carwyn Jones and his team stand up for these very vulnerable Welsh people and what weapons will they deploy?