Inflation (Hansard, 30 April 1981)

§ 1. Mr. Knox
asked the Chancellor of the Exchequer what has been the rate of inflation in the most recent 12-month period for which figures are available.

§ 3. Mr. Flannery
asked the Chancellor of the Exchequer what is the present rate of inflation; and if he will make a statement.

§ The Chancellor of the Exchequer (Sir Geoffrey Howe)
The annual rate of inflation for the 12 months to March 1981 was 12.6 per cent., compared with an annual rate of 21.9 per cent. in May 1980. This underlines the considerable success of our policies to curb inflation.

§ Mr. Knox
What proportion of the current inflation rate is demand-pull inflation, and what proportion is cost-push inflation?

§ Sir Geoffrey Howe
It is neither easy nor elucidatory to answer my hon. Friend's question in those terms. Inflation is on a downward trend, and its underlying rate is now lower than the rate when the Government came into office. At that time it was on an upward trend, but now it is going downwards.

§ Mr. Flannery
Does the right hon. and learned Gentleman accept that he has no reason to boast in the way that he has just done? He has utterly failed to make any connection between inflation and the increasing level of 892 unemployment, which many of us believe to be well over 3 million, when the unregistered are added. How can he satisfy us that he is not well on the way to sacking almost everyone, as the rate of inflation is bound to come down if such a policy is carried out? What will he do about the serious, massive and developing unemployment arising from the daily closure of factories?

§ Sir Geoffrey Howe
The Government share the concern of every hon. Member about the level of unemployment. However, it is not helpful to refer to the unregistered. As the Manpower Services Commission said the other day, the current definition provides a good and well understood series for discerning trends, and once that firm ground is left there is endless scope for statistical and semantic debate. In addition, unemployment is bound to come down slower than the rate of inflation, but the best way of securing a reduction in unemployment is by maintaining the Government's attack on inflation.

§ Sir William Clark
What is the current rate of inflation on a six-monthly basis? Does my right hon. and learned Friend further agree that our inflation rate compares favourably with the rate of inflation in the rest of Europe?

§ Sir Geoffrey Howe
The annualised six-monthly rate is about 10.5 per cent. at present. As my hon. Friend has said, our performance on inflation, as well as in a number of other respects, compares increasingly favourably with that of other countries in the OECD.

§ Mr. Shore
Does the Chancellor really think that an annual rate of inflation of 12.6 per cent. can possibly justify the savagery of his attack on the economy, the doubling of the level of unemployment and the major fall in the level of output? As the outturn of the money supply figures at the end of this financial year was about 20 per cent., and as the right hon. and learned Gentleman holds the view that the money supply is the predominant arbiter of the future rate of inflation, does he expect that in the coming year or the year after, inflation will resume its course and move up to its previous 20 per cent. rate or has he abandoned the whole preposterous theory of money supply?

§ Sir Geoffrey Howe
There is no question of an abandonment of what the right hon. Gentleman has described as the preposterous theory of money supply. He may have chosen that course, but that was not the course followed by the Government of which he was a member, nor is it the course adopted by virtually any other country which manages its economy successfully. As we have explained in previous debates, the growth in money supply figures last year was due to a number of special factors, including distortionary factors. I prefer to take some account of the fact that 12 months ago predictions about the current rate of inflation were far more gloomy than the predictions then being made by the Government, and the Government's predictions have turned out to be right.

§ Mr. Budgen
Will my right hon. and learned Friend confirm that a public sector borrowing requirement of £10.5 billion is more than enough if we are to reduce inflation in the future? Will he further confirm that if there are to be any concessions today to those who want reductions in taxation in any particular area, they will be compensated for by increases in taxation elsewhere?

§ Sir Geoffrey Howe
I shall be dealing with the precise question raised by my hon. Friend with regard to this afternoon's debate in the course of that debate, but I certainly stress the point that he makes. The proposed level of the borrowing requirement is that which is consistent with continued success in the fight against inflation. The level of borrowing likely to be achieved by the Labour Party would be destructive of any hope of getting inflation under control.

§ Mr. Richard Wainwright
If the international value of sterling, the level of which has been the main engine of inflation, ceases to apply and the exchange value enters a period of decline, will the Chancellor of the Exchequer alter his medium-term financial strategy in order to maintain a decline in inflation?

§ Sir Geoffrey Howe
The hon. Gentleman will understand that the relationship between domestic monetary conditions and the exchange rate of sterling is just one of many factors which must be taken into account. The financial strategy is designed to secure the right results in domestic economic terms to maintain success in the fight against inflation.