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The London Business School with Gower Publishing: Forecast Release: A PRIZE WORTH HAVING: A PRICE WORTH PAYING
Author(s) -
Burrell Andrew,
Dicks Geoffrey
Publication year - 1991
Publication title -
economic outlook
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.1
H-Index - 8
eISSN - 1468-0319
pISSN - 0140-489X
DOI - 10.1111/j.1468-0319.1991.tb00612.x
Subject(s) - inflation (cosmology) , economics , context (archaeology) , unemployment , boom , recession , fell , falling (accident) , economy , keynesian economics , macroeconomics , history , medicine , paleontology , physics , environmental health , archaeology , environmental engineering , biology , theoretical physics , engineering
Inflation is ‘licked’, according to the Prime Minister: in August it fell to 4.7 per cent, below the European Community average, and if present trends continue, it should fall below the rate in Germany within the next month or two (Chart 1). If this does occur, we can be sure that ministers will hail this development as a remarkable achievement, of proof that their economic policies are bearing fruit. At first sight, this is undoubtedly the case: inflation convergence within one year of ERM entry is an achievement which cannot be belittled ‐ it took France ten years and Italian inflation has still not converged. But the performance has to be placed in context. The German economy is in the midst of a post‐unification boom: output is rising at a near 5 per cent rate; despite large‐scale immigration from the east, unemployment is at its lowest level since 1981; indirect taxes have been raised to pay for massive transfers to the east; monetary policy has been tightened. It is unsurprising that inflation reached a ten year high in July of 4.4 per cent. The British economy on the other hand has been in severe recession for the last year: output has been falling almost as rapidly as it has been rising in Germany; unemployment has increased by nearly one million; interest rates have been cut repeatedly with immediate benefit to the retail price measure of inflation. Low inflation may be a ‘prize worth having’ (which is how the Chancellor's Parliamentary reply was drafted) but it can still be asked whether the price was worth paying (which is how Mr. Lamont mis‐read his script).