Inflating fear
OPTIMISTS wonder when we shall see inflation as low as this again. Pessimists wonder whether. Here we are with the Retail Prices Index measuring inflation at 2.4 per cent, the lowest rate for 20 years, and the unarguable economic success story of the Thatcher governments. The next figures, those for August, come through next week. The economists at brokers James Capel, who watch them closely, think they will bring out the rate barely higher, at 2.5 per cent. Still to be felt was the increase in petrol prices. That will be seen in the following figures (those for September), when inflation may climb back to three per cent. Capel's team see it at 3.2 per cent by the New Year, and 3.7 per cent by this time next year. With unit labour costs rising, they say, the underlying inflation rate is unlikely to have been falling. What will the Treasury do about those uncompetitive labour costs, apart from ministerial jawboning? Brokers de Zoete and Bevan say that the official response to a trade deficit would be 'to let sterling slip further until the depreciation is seen to feed through the export order books'. There is one lesson every post-war government has had to learn: they cannot devalue sterling abroad without devaluing it at home.
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