Soft landing, free lunch
THIS week's inflation figure, we know, will mark the top of the cycle, which will start rolling down again to six per cent or so by the year end, but these numbers are heavily influenced by the mortgage rates. Strip them out, and what Mr Lawson calls the underlying rate of inflation has gone up from about four to about six per cent. Where do we go from here? Mr Lawson repeats that last year the economy proved stronger than he thought, that this year it will slow down, that the pressure will come through to company profit margins and thence to pay settlements — and as for interest rates, he would not hesitate to push them as high as was needed. He has been saying this for a month or more, preferring the threat to the reality, a technique known on Wall Street as open- mouth monetarism. The technique works for as long as it works, and its judge and jury are the markets. They are unenthused just now. They worry more and more about the notion of a soft landing for the economy, a painless transition to slower growth. It begins to sound as improbable as a free lunch. Between dear money and a tight budget, Mr Lawson has probably done enough to bring about some sort of landing, but he went out of his way to tell the committee that he had never promised us a soft one.
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