The UK’s cost of living crisis is taking its toll, particularly on low-income households. The anticipated change in the energy price cap in April is set to plunge an additional four million families into ‘fuel stress’, where 10% or more of their income is spent on energy. As the latest headline inflation figure hits 4.8%, the Bank of England is set to continue raising its base interest rate, increasing the cost of borrowing in an effort to exert downward pressure on prices by reducing demand for goods and services. But this will fail to address current sources of inflation, and could even exacerbate the cost of living crisis by lowering future output and employment. A search for alternative solutions is generating much-needed debate about how we should think about, measure and navigate price changes.
As we lurch from one crisis to the next, misguided monetarist views that treat inflation as the result of excess demand driven by growth in the money supply are more dangerous than ever. Prescribing higher interest rates and lower government spending threatens the prospects for achieving a sustainable and socially just future. Senator Joe Manchin’s use of rising inflation to justify quashing Joe Biden’s ‘Build Back Better’ bill – intended to tackle climate change, create jobs, and improve welfare and social services – is a case in point. If fallacious arguments about prices are left unchallenged, they will contribute to an inadequate response to the cost of living crunch, and continue to undermine much-needed efforts to invest in social safety nets and green infrastructure.
So as inflation rears its head, how should we respond? There are seven key points that should underpin new approaches to thinking about and managing price hikes.
