The return of inflation should haunt politicians

A forgotten problem of political economy has the power to rob the poor, writes John Rentoul

The idea of a wage-price spiral surfaced after the pandemic (Getty Images)

Inflation used to be one of the central issues in British politics. Before that it was the balance of payments, and before that it was imperial preference. But in the 1970s and 1980s it was inflation. The 1974-79 Labour government even had a cabinet minister for prices and consumer protection, first Shirley Williams and then Roy Hattersley.

How to prevent prices from rising so fast was a task that defeated that government, and that was solved only by Margaret Thatcher. She had a succession of theories about the money supply (known as monetarism) that didn’t work, but which told her to raise interest rates, which raised the exchange rate, putting millions of people out of work – and that did the trick.

Inflation made a comeback towards the end of her time, as what Nigel Lawson, the chancellor, called a “blip” threatened to get out of control. The RPI (Retail Prices Index) peaked at 10.9 per cent the month before she was forced out of office, although the new CPI (Consumer Price Index), which is what we use now, was a better measure of true inflation at 8.1 per cent, and it rose to 8.4 per cent the following summer. That is the peak we are likely to approach this year.