Under capitalism, prices are supposed to be the centre of everything. They are the key agreement between buyer and seller. They are the one clear and reliable piece of information, on which the whole often opaque and unstable system depends.
So it struck me as strange when some of my local London shops stopped displaying the prices of some goods a couple of years ago. It started with upmarket fishmongers, and I wondered whether this was because wealthy customers didn’t need to count their pennies. But then the practice spread to corner shops and greengrocers, with a wider clientele, and to everyday purchases such as fruit and vegetables. There was a cost of living crisis going on, the worst in Britain for 40 years, but parts of Hackney seemed to be in denial.
Two years of relentless price rises later, much of the rest of the country still seems in denial as well. Inflation is falling but remains higher in Britain than many comparable nations. Yet opinion polls regularly show that roughly a third of Britons mistakenly believe that falling inflation means falling prices in general – rather than prices merely rising more slowly.
The government sometimes encourages this misunderstanding. Last July, Rishi Sunak told the radio station LBC: “If we bring inflation down, people will have more money to spend.” For a former chancellor, someone supposed to understand the economy better than almost anyone, it seemed a weirdly over-optimistic prediction.
In part, his upbeat statements about inflation can be explained as political desperation. Although much less the result of his policies than of global factors, such as the reduction of price pressures from the war in Ukraine, the falling rate is one of the few “successes” his premiership can claim. Despite usually being a leader with startlingly little feel for what voters think, Sunak’s stance on inflation is in tune with some of the public, at least in a psychological sense. The cost of living crisis has created a new economic reality in Britain, which many of us haven’t fully appreciated yet, or simply don’t want to face.
Apart from a few commodities sold by highly competitive retailers, such as butter and milk, most goods are not falling in price, and the cost of services is still rising rapidly by the standards of recent decades: by 6% a year, according to the latest figures from the Office for National Statistics (ONS). At best, the cost of living has reached a new plateau, where the air is thinner and the landscape bleaker for anyone whose income has not kept pace with inflation since it began to climb in early 2021.
There are almost certainly harsher plateaux to come. Our farmers are warning that food prices will rise after a long period of record-breaking rain. The freeze in income tax thresholds means higher rates for millions. Council tax is increasing at an unprecedented pace. Meanwhile, the slow-motion collapse of Thames Water suggests a huge bill is on its way, either to its 16 million customers in southern England or to taxpayers in general.
Misconceived privatisations, the climate crisis, the strained finances of both local and national government: British inflation is the product of both huge global forces and bad policy choices. Two years ago, an ONS study of British inflation since 1950 found that, while its infamous surge in the 1970s was largely caused by “sharp increases in world prices for food and other commodities”, since 1989 “the biggest driver … has typically been housing and household services, which includes gas and electricity prices”. By doing so much during the 1980s to create today’s property-obsessed, profiteering economy, Margaret Thatcher did not “defeat” British inflation, as she promised, but made it worse in the long run instead.
Until a government begins to address the unsatisfied desires and vested interests that sustain this inflation – for example, by undercutting the housebuilding giants with a programme of cheaper homes – then Britain is probably going to remain an expensive place to live. For the rich, this probably won’t matter much, if at all, judging by how they have continued to spend freely in the priciest parts of Britain throughout the cost of living crisis. For the poor, inflation has worsened the social emergency already caused by austerity, widespread ill-health and stagnant wages.
Meanwhile, for those who live somewhere between those two extremes, consumerism has changed, possibly for good. Instead of instant gratification, ubiquitous offers of 10% extra free and untaxed EU imports, shopping has become about carefully comparing prices, paying customs duties and finding shrunken products slyly hidden inside the same packaging. The feeling of consumer power that millions of middle-income British consumers once enjoyed has gone. It was partly built on the powerlessness of factory workers in poorer countries, and it was probably environmentally unsustainable, yet so much of our society, from shopping-dominated city centres to Sunday trading, was built around it.
One way to try to get that feeling of power back, if only temporarily, is to borrow money. But borrowing also takes power away. According to a forthcoming report from the debt charity StepChange, almost 3 million full-time workers – one in eight of the UK’s full-time labour force – are unable to keep up with their repayments.
When a shop stops displaying prices, it can be a way of persuading people to buy what they can’t really afford. Or a sign that prices are rising too fast for the shop to keep up. Either way, confidence in capitalism as a reliable system of exchange seeps away.
The inflation shock of the past three years, like those of the 1970s and 80s, will leave a legacy of money worries. They will weigh on millions of Britons long after Sunak declares inflation beaten. The cost of living crisis has made Britain a poorer, more anxious country. The Tories may deny it, but shopkeepers know it. A big reward may be waiting for a prime minister who can make many voters’ money worries go away.
