Inflation (Hansard, 30 April 1990)

The Paymaster General (The Earl of Caithness)
My Lords, there are a number of factors behind the recent rise in inflation. Retail price inflation is expected to fall to about 7-25 per cent. by the end of the year.

§ Lord Molloy
My Lords, is the Minister aware that that is hardly a satisfactory Answer when one realises that the Chancellor has expressed grave doubts about the figure and terminology such as the noble Earl has used? Should we believe the Answer that we have just heard or should we join with the Chancellor in expressing grave doubts about such figures?

The Earl of Caithness
My Lords, I am not sure to which figures the noble Lord refers. I know that considerable work is now being undertaken by the statistical office to try to improve some of the information that is available to us.

§ Lord Stoddart of Swindon
My Lords, in the interests of historical and economic accuracy, can the Minister confirm that all the great devaluations—those of 1931 to 1932, 1949 and 1967 and the 30 per cent. adjustment against the deutschmark between 1985 and 1987—were followed by a drop in inflation? Therefore, is not the correct policy for the Government to allow interest rates to fall and to permit the pound to find its own level so that our exports and business efficiency can be improved thereby solving the balance of payments crisis while at the same time lowering prices?

The Earl of Caithness
My Lords, the key problem which we face is inflation. That is the important item which we must bring under control so that it is well down from its present figure. That is best tackled by using interest rates. It is also helpful to have a strong exchange rate.

§ Lord Hatch of Lusby
My Lords, how can the noble Earl continue to argue that high interest rates are the best way in which to bring down inflation when it has been seen that inflation has gone up, pari passu, with the rise in interest rates? Is it not the 774 case that, despite what the Government say about bringing down inflation being their first priority, their own policies on the poll tax, electricity, water, gas, transport and the building up of the trade deficit are increasing the inflation rate rather than bringing it down?

The Earl of Caithness
My Lords, it is easy to continue on the same point when it is correct. I am disappointed that the noble Lord, as yet, does not appreciate that. With regard to the second string of supplementaries which the noble Lord asked, I am afraid that we are in a different country from that which he imagines. The Government do not control all the matters which he listed.

Lord Bruce of Donington
My Lords, is the noble Earl aware that his Answer to the Question on the Order Paper that there are a number of factors which contribute to the movement in the rate of inflation is no answer at all to the quite specific Question? In view of the fact that the Government have set such store by the rate of inflation and have always insisted that a strong pound is necessary to keep down the price of imports, surely the statistical resources available to the noble Earl through the Central Statistical Office, now under the control of the Treasury, should be sufficient to enable him to give a specific answer to the Question raised by my noble friend?

The Earl of Caithness
My Lords, as I said, there are a number of factors which are the cause of the recent rise in inflation or, indeed, any figure which the noble Lord may wish to take. The noble Lord, Lord Peston, who is an acknowledged economist, will say that there is a formula which could be used to try to determine such a figure. However, that formula depends on other things being equal. As your Lordships well know, other things are not always equal.

§ Lord Ezra
My Lords, is the noble Earl prepared to chance his arm on a hypothetical question? If we had been members of the exchange rate mechanism, would not sterling have been under less pressure? Would it not then have been possible to have lower interest rates and in turn would that not have reduced the rate of inflation?

The Earl of Caithness
My Lords, the noble Lord wins the full admiration of the House for his consistency in trying, but I am not going to answer his question.

§ Lord Peston
My Lords, I thought that I was an innocent by-stander as regards this Question. Is not the noble Earl aware that the Government of which he is a member have been elected for the past three general elections on one premise; namely, that inflation does not have many causes but only one—an excess rate of rise in the money supply? Have the Government now given up that position in order to adopt the position which the rest of us have held for quite a long time?

The Earl of Caithness
My Lords, the noble Lord knows full well that there are a number of factors. There is an excess increase of demand over productivity which has led to some higher prices. The present rate of inflation is something of which we are not proud, but it is a rate of which the Labour Party would have been very proud.

§ Lord Mackie of Benshie
My Lords, the noble Earl said that he expected the rate of inflation to be something just over 7 per cent. by the end of the year. Will he say whether he first expects it to rise because some figures are due to be published quite shortly? If so, how much does he expect it to rise before it starts to fall?

The Earl of Caithness
My Lords, I shall not forecast what the figures may be in the future. I have given an estimate for the figure towards the end of the year.

§ Lord Molloy
My Lords, does not the noble Earl agree that this so-called fight against inflation has brought the most sordid misery to tens of thousands of ordinary folk who are trying to buy their homes as well as having many other effects? Is it not possible for the Central Statistical Office to examine what has happened with regard to the pound and its comparison with the deutschmark and the dollar? If it cannot give a definite answer, why does it exist? Is it because it was unreliable that the Chancellor decided to take that office under his own wing?

The Earl of Caithness
My Lords, we appreciate that the high interest rates needed to combat inflation have caused many difficulties for those with mortgages. However, let us contrast that with the situation of high inflation in the 1970s. That undermined pensioners' savings by one-third. The noble Lord will appreciate that it is better to have a little pain now in order to solve the problem.

Lord Bruce of Donington
My Lords, after these exchanges, will the noble Earl reply to the Question on the Order Paper?

The Earl of Caithness
My Lords, I thought I had replied fully to the Question.

§ Lord Tordoff
My Lords, with respect to the noble Earl, he has not applied himself to the specific Question on the Order Paper. Will he now do so?

The Earl of Caithness
My Lords, I have replied. I am sorry that the noble Lord does not think I have done so. I shall check the record with great care and if it is felt that I have not replied, perhaps the Question can be tabled again.

§ Lord Molloy
My Lords, the noble Earl has obviously not answered the Question. The Central Statistical Office has now been taken over, more or less, by the Chancellor himself. Cannot the noble Earl refer this Question to that office and then write to me? A copy of the letter could then be placed in the Library for all noble Lords to examine.

The Earl of Caithness
My Lords, I always try to ensure that copies of any letters written to your Lordships are placed in the Library in accordance with the usual practice. However, I feel that I have answered fully the noble Lord's Question today.