Inflation Myths: Wage rises don’t cause inflation

What is inflation?

It’s a relative increase in the cost of living- the cost of goods and services- and in Britain is usually measured by the Retail Price Index (RPI) and the Consumer Price Index (CPI). These base their figures on a “basket” of goods and prices of clothes, fuel, energy etc. The RPI differs from the CPI in including mortgage interest payments and so takes house prices into account. There are other ways of measuring inflation like RPIX which leaves out mortgage payments, and CPIH, which factors in some elements of housing costs including council tax.

 All these registers signal the biggest increase in inflation in the UK since 40 years ago.

But why is it happening?

During a period of growth, bosses compete to invest where they think they can make a profit.  Capitalists compete to buy the same raw materials, and so drive their price up. This then impacts on their profits. To compensate, they raise prices on the goods they produce. This then impacts on other capitalists, who in turn raise their prices.

So, is inflation caused by wage rises?

Inflation is a weapon of the capitalists to reduce the real value of wages so as to maintain and increase profits. In fact, there has been a huge surge in profits. For example, the banking corporation HSBC made a profit of nearly £17 million in the last six months. They are double what they were last year. Its CEO Noel Quinn gets £6 million a year, which could rise to £10 million depending on increasing profits. The oil and gas corporation BP  saw their profits double last year to £23 billion. Shell saw its profits go up 53% for last year to £68.1 billion. Sixty per cent of the current rise in inflation is caused by this huge increase in profits. True, the COVID pandemic had a big effect on the supply chains, which was further aggravated by shortage of labour and the war in Ukraine had its effects on energy and food prices, but the main culprits for inflation were the corporations. It’s not just the banks and the oil giants, it’s the supermarkets, Tesco made a profit of £56.7 billion in 2022, Sainsbury’s £327 million, and Asda made £886 million. Manufacturers like Rolls Royce made a profit of £206 million.

The capitalists themselves know that wage rises don’t cause inflation. The Organisation for Economic Co-operation and Development released a report in June admitting that the main driver of inflation was UK business and its thirst for massive profits.  Yet Rishi Sunak and the Governor of the Bank of England, Andrew Bailey, are intent on furthering the lie that wage rises cause inflation. But wages have remained static for ten years but inflation has been on the rise. To put it bluntly, prices are rising because profits are soaring.

The CPI in the UK rose by 2 points in April to 9%, the biggest month-on-month annual increase since June 1979. At the same time, prices rose in the USA and the eurozone. The International Monetary Fund made the prediction that inflation on a world level will go up during this year and next, twinned with minimal economic growth.

In Britain more and more people are getting themselves into debt to pay for increasing prices. An additional £1.7 billion of consumer debt was run up in June, £600 million of which was on credit card spending (Bank of England monthly money and credit report).

Meanwhile, Bank of England bosses, (Andrew Bailey excepted) awarded themselves pay rises averaging £4,300 a year, whilst exhorting workers to refrain from demanding higher wages. One of these fat cats, the Bank of England’s chief economist, Huw Pill, said that people “need to accept” that they are poorer.

More and more workers are realising that rising inflation is not caused by higher wages, that it is a lie. Workers must now take effective action to win wage demands, making sure they start organising at grass roots level to avoid the sellouts of the union bureaucrats.