Inflation (Hansard, 12 November 1992)

§ 2. Mr. Evennett
To ask the Chancellor of the Exchequer what is the latest estimate of the rate of producer price inflation.

§ 7. Mr. Carrington
To ask the Chancellor of the Exchequer what is his latest assessment of the prospect for inflation.

§ The Chancellor of the Exchequer (Mr. Norman Lamont)
Producer price inflation for manufacturing, excluding food, drink and tobacco, is estimated to have 977 been 2.5 per cent. in October—the lowest rate of increase since May 1969. I shall outline my latest assessment of the prospects for inflation when I present my autumn statement later today.

§ Mr. Evennett
I am grateful to my right hon. Friend for that information. Does he agree that low inflation gives British industry a great opportunity? Furthermore, will he urge British business men to build on the Government's achievement of low inflation by going out into world markets and selling more British goods?

§ Mr. Lamont
My hon. Friend is absolutely right. Low inflation is the most important aspect of competitiveness. As long as other countries have low inflation, we cannot afford to have high inflation. That is why it is good news for our exporters to Europe that our level of inflation has been below the European Community average. I hope that our exporters will take the maximum advantage of that.

§ Mr. Carrington
The news about inflation is extremely good. Does my right hon. Friend agree, however, that the dangers of an increase in inflation are ever present in the economy, particularly given the decrease in the value of the pound? Will he reassure the House that his determination to continue to fight inflation is undiminished?

§ Mr. Lamont
My hon. Friend is right to emphasise that excessive depreciation of the pound would endanger our inflationary objectives. That is why I have consistently made it clear that I am not prepared to take risks with inflation or the exchange rate. Having said that, the depreciation that we have experienced and the fact that our inflation is lower than the European average mean that our exporters have a considerable opportunity.

§ Mr. Beith
As the Chancellor often pointed out that the exchange rate mechanism partly helped us to achieve low inflation, is there a level below which he would not wish the pound to sink because of inflation dangers? If he will not tell us what that level is, how are markets to believe that he will pay more attention to the level, which may be in his mind, than to all the pressures from behind him?

§ Mr. Lamont
As I have repeatedly made clear, we do not have a formal or informal exchange rate target. But I have made it crystal clear that we believe in a strong exchange rate. The right hon. Gentleman asks why people should believe that we care about inflation or that we will do what is necessary. The one thing that cannot be denied is that in the past couple of years we have fought a tough battle, stuck with difficult policies and succeeded in getting inflation down from nearly 11 per cent. to under 4 per cent.

§ Mr. Skinner
Has not the Chancellor of the Exchequer got a cheek telling the House that he is capable of bringing down inflation, or anything else, after the misery of the past few weeks? Is this not the Chancellor of the Exchequer who borrowed £7.25 billion not to bolster social services but to throw money at the stock exchange, and the same Chancellor who condemns the Labour party for borrowing money to provide services despite throwing £10 billion down the black hole at his City friends?

§ Mr. Lamont
The hon. Gentleman is quite wrong—I do not know whether intentionally or otherwise—if he is implying that money spent on supporting the pound might have been available for public expenditure. As he knows, 978 we exchange one currency for another by using reserves or by borrowing. The cost to the public sector depends on what happens to the trend of the exchange rate. Much of the reserves that were deployed to support the pound were acquired at a lower level than that at which they were sold and we made a profit.

§ Mr. David Martin
Will my right hon. Friend confirm that the battle against inflation remains the central aspect of the Government's economic policy and that, in the long term, policies based on debauching the currency will lead only to economic ruin, as we saw for so many years under Labour Governments—when we last had them?

§ Mr. Lamont
I hope that I have made it clear that we have not gone through the past couple of years—the sacrifices, effort and difficult policies that have been pursued—to throw it all away. As various of my hon. Friends have said, a low rate of inflation is vital for our competitiveness and the future of jobs and therefore important to the country as a whole.

§ Mr. Gordon Brown
Given all that the Chancellor says about the prospects for inflation, will he explain why, in the months after devaluation, input prices for manufacturers rose by 2.5 per cent. in only four weeks? In answer to a question on inflation several months ago, the right hon. Gentleman said that unemployment was a price worth paying. Will he now apologise to the million people who have lost their jobs since he made that statement? Can he now tell us when unemployment will come down?

§ Mr. Lamont
The most important thing for unemployment is, first, that we get recovery and, secondly, that we have low inflation. Those are the most important factors that will affect unemployment.
I am certain of one thing about input inflation: those figures in that one month do not reflect the depreciation of the pound. The hon. Gentleman may have noticed that producer output inflation, minus food, drink and tobacco, was the lowest since May 1969. The trend of producer prices is a good guide to future inflation and is extremely encouraging.

§ Mr. Burns
Does my right hon. Friend agree that low inflation figures are one of the factors that are crucial for restoring consumer confidence? Will he deplore the practice of certain business organisations, political and economic pundits and Opposition Members who constantly talk down every good statistic that is published, thereby undermining any increase in confidence?

§ Mr. Lamont
I agree with my hon. Friend. Indeed, I have made the same point from time to time. My hon. Friend is also right to say that low inflation is vital for consumer confidence.