The whisper that the government was considering price caps on food, now the biggest driver of inflation, has produced the inevitable backlash. Out scuttled mini-me Thatcherites and big business PRs waving shrouds. Ministers admitted only to looking into the idea of “voluntary” controls. But the last 15 years have shown that state intervention is considered economic heresy until it becomes politically necessary.
While control of inflation is the job of the Bank of England, the government has made halving inflation this year one of the five pledges on which it wishes to be judged. Since 2008 there has been a turn away from free-market ideology, as it became increasingly clear that the economy was not working in the way textbook models had assumed. This has become obvious in the case of inflation, which mainstream economists mistakenly viewed from the vantage point of the 1970s. Seen from here, rising prices are to do with too much demand in relation to economic capacity on one hand, and too much money chasing too few goods on the other.
This outlook has been overtaken by a new consensus, spearheaded by Isabella Weber, at the University of Massachusetts Amherst, who says that not only is this the wrong interpretation, but so is the idea that rising prices can be tackled by rising interest rates.
Instead, Dr Weber looks at the problem through the lens of distributional conflict between workers and companies. She argues in her latest paper that firms with market power can hike prices, and a widespread acceptance that they have a chance to cash in leads to “seller’s inflation”. Workers react by attempting to protect real wages. From this perspective, labour conflict is not the origin but the consequence of inflation.
Floating the idea of price controls is a step towards vindicating Dr Weber’s thesis – which she first outlined in the Guardian in December 2021 – and the associated phenomenon of greedflation. Her article singled out the long-neglected alternative to rising interest rates to tackle inflation: strategic, targeted price controls. Neoliberals judged this to be an act of madness. But time has been on Dr Weber’s side. She ended up advising the German government last year, while many European nations resorted to food price caps. One of the reasons Switzerland had very low inflation in 2022 was its extensive use of price controls.
Given that the Conservatives have intervened with an energy price cap and explicitly acknowledged that this has restrained inflation, it is telling that the government cleaves to old nostrums. As one City analyst wryly noted, “the first rule of profit-led inflation is that you do not talk about profit-led inflation”. Even if a more interventionist state is no longer taboo, the shift still needs to be presented as part of a coherent Tory narrative.
That Rishi Sunak is contemplating capping food costs is a tacit admission that without further measures he risks missing his target to cut inflation. The reason Mr Sunak made that promise is that slowing price rises is the only way in which, under his self-imposed rules, he can offer wrong-headed, crowd-pleasing tax cuts before the next election. Such policies have for more than 40 years resulted in growing disillusionment and despair. Mr Sunak’s orthodox politics militate against the emergency price-stabilisation policies and inequality-reducing redistribution that would fight inflation in a fair and socially steadying manner. But that is what the country needs.
