The latest inflation figures have been greeted with warnings suggesting the UK may be heading for the days of the Weimar Republic. But an annual increase in the retail price index (RPI) of just over 5% is not so severe, and not so significant historically. Germany in 1923 suffered inflation so severe that prices doubled every two days, and banknotes became so worthless they were used as wallpaper.
Click for larger image - figures from ONS
So how bad is the current inflation rate? Putting it against the increase in the RPI over the 25 years from 1970 to 1994, this year’s figures (between 5% and 5.5% since January) don’t seem so bad. Inflation was at or above 5% from 1970 to 1982, and at or above 10% for around half that period. The RPI increase peaked at 26.9% in 1975, with a lesser peak of 21.9% in 1980.
Despite the promise that the remedy of monetarism would cure the system of inflation, it took some seven years after the Tories returned to power in 1979 before the rate dipped below 3%, and this interlude lasted a mere four months. Inflation got into the high single figures as the 80s came to a close, and exceeded 10% again in 1990. Interest rates as high as 15% brought a fall.
But it was not until the aftermath of Black Wednesday, and devaluation coupled with lower interest rates, that inflation fell below 2%. Given that many of the hacks and pundits reporting on the economy have lived through some – maybe all – of the period shown on the chart, one can only conclude that there are some short memories out there.
Unless, of course, it’s done just to frighten the readers and sell a few more papers.