‘Partygate’ has distracted attention from the dire inflation statistics published today, says Matthew Lynn in the Spectator. Prices are now rising at an annual rate of 7%, up from 6.2% last month – the fastest rate in 30 years. In America it is 8.5%, in Spain 9.4% and in Germany 7.3%. The cause, says Lynn, is lockdown.
We are now paying the cost of lockdown. You don’t exactly need to be Milton Friedman to work out that when you massively increase the amount of money in circulation, at the same time as dramatically restricting the ability of the economy to produce stuff, while also paying a few million people to stay at home for a year watching Netflix and baking sourdough bread, then prices start to escalate very quickly.
It is interesting to note that the one economy that did not lockdown to the same extent as the rest of the world, Sweden, is only seeing a modest uptick in prices (Swedish prices are rising at 4.5% annually). True, the price of energy, and the over-enthusiastic pursuit of net zero, have also played a role. But that is often exaggerated, especially by finance ministers looking for someone else to blame. In fact, oil was above $140 a barrel in early 2008, much higher than it is today in real terms, without causing a surge in inflation. Gas supplies from Russia are an issue, but that is only a relatively minor component of the overall rise in prices. The real explanation is that we shut down our societies.