Inflation, disinflation, and exploitation

Under capitalism, both inflation and disinflation (measures to slow inflation) hurt workers.

When prices go up, real wages go down, unless workers win wage increases to match. We have done that in some periods, or even won guarantees of monthly pay rises keeping pace with prices.

Disinflation, by cutting back public works and public services, by raising taxes, or by raising interest rates, generally leads to higher unemployment. Workers can fight back by demanding public services, shorter work-weeks, and shifting taxes onto the rich. It’s often more difficult than fighting the effects of inflation.

The current inflation comes from the rise in oil and gas prices since early 2021 and especially since Russia’s invasion of Ukraine. The effects are still working through, despite oil and gas prices sinking again since late 2022. It also comes from the “release” of purchasing power stashed up during the lockdowns.

At least one reason why inflation is worse in Britain than in the USA or Western Europe is Brexit, impeding trade between Britain and Europe.

High inflation is not a capitalist conspiracy. Capitalists prefer a low, steady rate of inflation. But when inflation flares, they seek to make workers pay the cost.

Their standard answer to inflation these days is higher interest rates. Those are means to slow borrowing and investment, and thus ease upward demand-pressure on prices. At best they work poorly and with long delays. Meanwhile they push up mortgage payments (and, more indirectly, rents).

The government now has to offer high interest rates on its new borrowing because international financiers demand it. It has to pay high interest rates on old borrowing because (unusually among capitalist governments) it has borrowed a lot at interest rates linked to RPI.

Over the five months to April 2023, the government paid out an average £9 billion per month in debt interest to financiers, an equivalent of over £100 billion for the whole year, comparable to the NHS budget.

That debt burden spooks the Labour leaders. We need to demand they turn to taxing the rich rather than continuing Tory austerity.

Socialists aim to replace economic allocation by money and markets by “from each according to their ability, to each according to their need”. In the meantime, we have no special fancy technique for stopping inflation. The workers’ government in Russia in 1917-22 had roaring inflation; it mitigated the effects in a socialistic way, by distributing essentials free, by introducing the world’s first free public health service, etc.

The “cost of living crisis” is a crisis of capitalism. Essentially, it’s about the capitalists and the government trying to mitigate the adverse effects of inflation for them by keeping down wages, worsening conditions, and squeezing public services.