Excerpt:

Inflation is out of control due to excessive money printing during the pandemic. This indisputable fact is often overlooked or evaded in discussions, with many preferring to shift blame to the usual suspects of Covid and the Ukrainian war.

In the UK, annual core inflation (which excludes food and energy prices) currently stands at a staggering 7.1%. Officially, food inflation is reported to be close to 20% but unofficially it’s much higher. From the onset of the pandemic, it was evident that inflation would not be a temporary or transient issue and those who used such words were quite simply lying to manipulate and manage public expectations.

Any kind of inflation is just a hidden tax on citizens, especially those at the lower end of the socio-economic scale. Inflation erodes the value of individuals' savings and diminishes their purchasing power. If salaries don’t increase in line with the inflation rate (and I mean the real inflation rate), individuals face a decline in their standard of living. Paradoxically, some level of inflation can benefit the wealthy. As long as inflation remains within certain limits and does not devalue the currency excessively, it inflates the value of their assets while reducing their debts.

But inflation is currently too high and therefore has the potential to cause problems even for the rich. They are, therefore, desperate for it to reduce a little to protect their assets and to do this they want to curb demand. With so much printed money in the system, prices spiral upwards as people demand higher wages which they then use to pay higher prices for goods and services.

So how do you remove demand? Simple, by making people poorer. And how do you make people poorer? One way is by making goods and services more expensive, effectively reducing individuals' purchasing power. One way to do this is by increasing interest rates, making loans less affordable. It could be argued that the Ukrainian war was an excuse to make energy more expensive and therefore reducing demand for energy. The second is by eliminating jobs, leaving people without income to spend on discretionary items.

This approach of making people poorer is what Martin Wolf in the Financial Times is calling for.

Something has to change, radically and soon. We are seeing a price-price and wage-price spiral radiating throughout the economy. The only way to halt this is to remove the accommodating demand. In other words, the question is not whether there will be a recession; it is rather whether there needs to be one, if the spiral is to be halted. The plausible view is that the answer to the latter part of this question is “yes”. Like it or not (I certainly do not), the economy will not get back to 2 per cent inflation without a sharp slowdown and higher unemployment.

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