Yesterday the Prime Minister was very excited about achieving the first one of his top five priorities – halving inflation before the years end, with Consumer Price Inflation (CPI) now down to 4.6% Rishi claimed the credit for what was largely down to global energy prices falling. Most people know governments can drive up inflation by printing money and proliferating spending, which to be fair to Sunak and Hunt they are holding the line on. Not everyone realises that consumer taxes also contribute to the CPI figure. In fact according to the Office for National Statistics* alcohol taxes contributed over a third of a percentage point to inflation.

If the government want to convince the public they are taking effective action on the cost of living they should not be adding to inflation in the Autumn Statement next week with consumer taxes. According to Survation 55% of the public think taxes on alcohol should remain at current levels or be reduced, so any action to reverse or at least hold the line on alcohol duty would be seen by voters as action on the cost of living and would be counter-inflationary. It would also reduce the CPI figure and help reach that 2% goal…

*The ONS paper  “…the 0.37 percentage point contribution to the annual rate in August 2023 from alcohol and tobacco was the largest from that division since the start of the National Statistics series in 2006.”

Some good news for Rishi this morning, he’s getting somewhere with one of his five pledges – to halve inflation. According to ONS figures, Consumer Price Index (CPI) rose by 4.6% in October, down from 10.7% in January when Rishi first promised to halve inflation, the lowest rate since November 2021. Sunak shouldn’t get too excited however, as one statistic shows high inflation over the last two years has cost UK workers the equivalent of a 3p income tax rise. Given how much inflation has grown, a halve in the rate it’s growing isn’t something to be “popping champagne corks” over, as Shadow Chancellor Reeves put it…

The fall is mainly due to lower energy prices, as gas costs are were down 31% and electricity costs fell by 15.6%, though core inflation did fall from 6.1% to 5.7%. What the energy markets give they could just as easily take away. Still a long road to the Bank of England’s actual inflation target of 2%…

New figures from the Office for National Statistics show that Public Sector New Borrowing in the first half of the financial year was up from last year but £20 billion lower than the OBR forecast back in March. Borrowing in September was also down £1.6 billion from 2022, though that’s still the sixth-highest since monthly records began in 1993. Seeing as OBR forecasts run economic policy, that means there’s a deal of wiggle room…

For all Hunt’s spinning over the inviability of tax rate reductions, the Treasury is hauling in unprecedentedly gargantuan amounts from stealth tax grabs. Economist Julian Jessop says there is clearly room for “some well-targeted tax cuts” in the Autumn Statement. Guido isn’t convinced that Hunt has got the message…

Inflation remained at 6.7% in September, defying analysts’ forecasts of a 0.1% drop, and ending the three-month run of incremental decreases. The Office for National Statistics released the figures this morning, showing fuel prices have risen higher than expected, offsetting the dip in food costs. It’ll be a photo finish for Rishi to halve inflation by the end of the year…

The ‘good’ news is this is still lower than the Bank of England’s prediction of 6.9%, after August’s rate fell lower than expected. As Julian Jessop points out, this means the Bank probably shouldn’t scare itself into hiking interest rates again:

“Despite the disappointing inflation data for September, the Bank of England should now be thinking about cutting interest rates, not raising them again. The bigger than expected fall back in August means that inflation is still lower than the Bank had been forecasting. Economic growth has been weaker too…”

The government needs to get that figure below 5.4% to meet Rishi’s “halve inflation” pledge…

New data from the Office for National Statistics (ONS) shows average pay between June and August outstripped inflation for the first time since October 2021. According to this morning’s figures, wages rose by 7.8%, with inflation sat at 6.7% in the year to August. Finally some good news…

Those working in finance and business services are seeing the largest yearly pay hikes, while construction workers are seeing the lowest at 5.7%. Public sector wage growth is just about pipping inflation at 6.8%…

Jeremy Hunt said this morning:

“It’s good news that inflation is falling and real wages are growing, so people have more money in their pockets.”

The latest inflation figures are out tomorrow. Stay tuned…

Jeremy Hunt is continuing to fend off pressure to cut taxes at Tory Conference, claiming yesterday that they would “compromise” the fight against inflation. Left-wingers are known to argue that tax cuts are inflationary but the facts don’t bear out. Inflation is a monetary phenomenon.

When taxes are cut people will buy more goods and services at the already elevated prices. Meanwhile, wealthier families save the extra money to invest. Disposable income has not been shown to affect inflation. Even the £10 billion cost of living package had almost no effect.

Tax cuts that stimulate production, for example in corporation tax, will be anti-inflationary. As inflation is caused by a growing amount of money chasing a reducing amount of goods and services, then tax cuts that stimulate production will bring the level of inflation down by increasing supply. It’s basic economics… the main reason we don’t have tax cuts is because the government doesn’t want to cut spending.