Wednesday, 18 January 2023

Getting poorer more slowly


The reluctance of trade unions to accept some sort of one-off payment in recognition of the high level of inflation this year is understandable. One year’s 10% inflation doesn’t disappear if inflation halves in the next year, it merely becomes part of the next year’s base level of prices. So, if inflation is 10% one year and 5% the next, when we take into account the wonder which is compounding, it needs a total increase in pay of 15.5% over the two years just to keep pace with the cost of living. And that’s without even considering the extent to which pay fell behind prices in the years before that. Suspicion of a non-consolidated payment for one of those years is entirely justified.

The government are making a great play of the idea that they are getting the cost of living under control by reducing the rate of inflation, but a reduction in the rate of inflation when wages continue to lag behind prices doesn’t ‘solve’ anything. It merely slows the rate at which people fall behind. “We will slow the rate at which you get poorer” isn’t the catchiest of election slogans, yet that is the best that the current government is effectively offering. Far from regretting that people do not have a proper command of mathematics, government policy on pay depends on the assumption that people don’t understand that reducing inflation in itself is not enough. They may find that people’s understanding of basic mathematics as it directly affects them is rather better than they might wish. Voting to be impoverished more slowly is not the most attractive proposition.

1 comment:

dafis said...

Oddly enough I wrote a brief comment on this very matter which is glaringly obvious earlier today. Somehow it was judged as unacceptable by the online publication. Funny old world, innit. Seems like the new orthodoxy demands that we accept a decline in the rate of inflation as a real improvement. Suggests a great need for the teaching of arithmetic to people well into their adult lives. Or an eradication of various puddles of groupthink.