What is happening with inflation – Why aren’t prices falling fast enough?
Wayne Scott Dundee
From the Socialist in Scotland Sept 24
Figures from the Office for National Statistics show that inflation rates have increased in the last quarter (spring 2024) to 2.2%, after falling throughout 2024. This is driven by the fact that energy bills have fallen less than expected as the gas and electric companies continue to rake in enormous profits. With energy bills set to increase by 9% this winter, against a political backdrop of Starmer’s Labour cutting winter fuel payments for the elderly, the cost-of-living crisis is far from over.
Whilst CPI inflation rates have fallen over the past year since the peaks of the inflationary crisis, this does not mean goods and services are becoming cheaper, merely that prices are not rising as fast! The prices of essentials, particularly in services, are still rising, whilst wages lag far behind. This basic fact was even acknowledged by Murdoch’s Sky News, no friend of the working class, who posed the question, “are we still being short changed?”, acknowledging that the overall price level has risen by 20% since 2021, without a corresponding increase in pay. Proof that even a stopped clock can be right twice a day!
This alone is enough to answer the arguments of capitalist economists who state that inflation is down to a wage-price spiral, in which rising wages are the leading cause of inflation. This was the argument of the Bank of England, who in 2022 urged workers to show restraint in pay negotiations to keep inflation at bay. Numerous studies since then, including by Unite the Union have shown clearly that it is not rising wages that are pushing up prices, but the bloated profits of big business, particularly in energy and food, whilst workers struggle to pay for even essentials.
Measuring inflation
The bosses prefer the CPI measure of inflation as this excludes important factors such as housing costs, meaning that it is generally lower than the RPI measure, allowing for the further restriction of wages in pay negotiations with trade unions. Whilst the strike wave of 2022-23 saw many groups of workers win further concessions on pay compared to what was originally on offer, this still fell below the RPI rate of inflation in many cases meaning real terms pay cut.
Cumulative inflation since August 2019 has seen prices rise by 33% using the RPI measure. Given these facts, the expected cut in interest rates next month will bring little reprieve to working- and middle-class families struggling to keep up with mortgage payments, bills and the cost of essentials.
The Socialist solution
Karl Marx explained that inflation has the effect of cutting real wages, whilst increasing the profits of the capitalist class. Inflation therefore leads to increased rates of exploitation as bosses get richer at our expense. This is exactly what has taken place since 2021. Marx went onto argue, however, that workers can organise and fight back against this process by demanding wage increases that exceed inflation.
During this crisis, Socialist Party Scotland has consistently put forward a programme to combat the cost-of-living crisis. In the first instance, this demands above inflation pay rises, a £15 an hour minimum wage, and the establishment of workers committees to monitor inflation rates and implement price controls. However, it also means fighting for a different society, a socialist one.
Socialists demand genuine public ownership of the energy companies, and the other profiteers such as the big supermarkets, kicking out the fat cat bosses without compensation and a system of democratic workers control and management. Such a programme would mean prices could be based on need and not profit maximisation. Only bold socialist policies such as these can solve the ongoing cost of living crisis.
