CITY AND SUBURBAN
Another bright idea left over from Whosis it's time to think again
CHRISTOPHER Fl LDES
The Inflation Report, like the Unified Budget, is a bright idea left over from the previous Chancellor of the Exchequer, whose name continues to elude me. Uni- fied budgeting has now enabled his succes- sor to plan on a 4 per cent increase in pub- lic spending and call it a freeze. What he means is that at this time last year, when the spending departments were walking all over the Treasury, the Cabinet thought of a number for next year's expenditure and has now thought of it again. The Bank of Eng- land thoughtfully observes that govern- ments that pile up debt must be expected to inflate their way out. When sterling fell out of the exchange rate mechanism and the Chancellor had to think of something else, he asked the Bank to opine on infla- tion once a quarter. It has not missed its chance. Policy must be credible, so it tells us this week, expectations are influential, and a source of uncertainty is the behaviour of wage bargainers. If they think inflation is going up, they will ask for more money (I paraphrase the stately prose) and if they get it, inflation will go up. The Bank always likes to wag its finger at wage bar- gainers, secure in the knowledge that it has nothing to do with them. This left-over bright idea has not been thought out, and should be. What it lacks is a theory of infla- tion. If the Bank wants, as it does, to be responsible for monetary policy, and if it thinks, as it would, that inflation is a dis- ease of money, its monetary stewardship must be what matters and it should report on that. It can leave the bargain-makers to their beer and sandwiches.
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