To Avoid The Painful Return Of Inflation We Must Act Now

‘The longer we wait, the firmer the grip inflation will take’

- Stephen Pollard Political commentator

One of my most deeply entrenched political memories is from 1974, of Patrick Jenkin, the then Energy Minister, being pictured shaving in the dark and urging other men to do the same.

It was a time of genuine national crisis, with fuel shortages meaning that the Government had been forced to introduce the “three day week” with factories only allowed to operate for three days. Power cuts were universal, random and frequent, and there was a sense in which the Government had lost any semblance of control.

For all the problems we face today, we have not returned to the 1970s. But some of the echoes are eerie, and they point to warnings that we need to heed about the situation we find ourselves in. They show the ease with which inflation can take hold, and the destructive force with which it wreaks havoc.

In October 1973, the “Gulf Six” oil producers unilaterally increased the price of oil by 70 per cent, from $3.01 (£2.20) to $5.12 (£3.75) a barrel. It is difficult to exaggerate the impact of this shock to Western economies. In Britain, we were already in the midst of a miners’ strike that was causing chaos.

Inflation was high – it had hit 9.2 per cent in 1973. But the oil price rise sent it through the roof, to 16 per cent in 1974 and 24.2 per cent in 1975. (For comparison, inflation in the prepandemic year of 2019 was 1.79 per cent.)