Government action and inaction is the major contributor to inflation

AS WE are only too aware this summer the only thing that comes down consistently here is the rain.

Prices may come down for a short time for the sales events. However, much of the stuff on sale is going to be out of fashion soon so our gain is questionable. In any event those sales last for a few weeks at most and then the prices are back up again, often to higher prices than they were prior to the sales.

In recent months we've also seen fluctuating petrol prices. The latest kite flying from the government would suggest that we're not going to enjoy any reductions much as they are now considering adding a charge on petrol prices to build up the National Development Plan Fund.

It seems that since this 'new' government was elected we've seen nothing but price increases and cuts in services and expenditure. From a position prior to the election where no cuts had been undertaken or were planned, to a post election position where cuts or price increases are the order of the day.

The recent release of July inflation figures would suggest that inflation has reduced slightly to 4.2% from 4.4% the previous month. However, we are still two and one half times EU average inflation. That might not seem much but it is not too long ago when we had the lowest inflation in Europe and the fastest growth rates. It's even of more concern when the fact that much of it is self-induced is taken into account. Indeed if the packet of goods and services that make up the Consumer Price Index was examined carefully we might ask if other more basic commodities should be included. The inflation rate would more accurately reflect what's actually happening on the ground.

The political cant is that increasing or higher inflation is solely the result of external forces. The two major external forces are oil prices and the exchange rate between the euro and the US Dollar and the British Pound.

And in a sense that's true. However, those same two forces impact our Euroland neighbours but not with the same consequences. However, there is one exception, which we will talk about later. The major ingredient making the difference between our inflation rate and that of our neighbours is down to government action on the one hand and its inaction on the other hand. Its actions over recent months, since the election, in its stealth taxes in raising prices in the health arena and in education will have an effect. It may not be immediate and it may not be a direct effect but it will effect inflation rolling forward over the rest of the year as costs rise to cover increased charges.

Its inaction refers specifically to the price gouging that followed the introduction of the euro earlier in the year. Most of us have experienced spiralling price increases over the last six months. Those of us who have been lucky to visit most spots in Europe this summer will have noticed the difference. We always knew that we were more expensive here but we can now see it in glorious technicolour it's simply a short plane ride away. The euro presented an opportunity and many took that opportunity to make a killing.

Business lobbyists can say what they like we know differently. The euro in our pocket is worth less every day and every time we shop it costs more.

And it's not a perception it's a reality. So, what to do? There are two very simple solutions. It's simple enough and there is no need to elaborate on it. The second solution is to source more of our food and other products in Europe rather than high cost (from our perspective) Britain. Why we haven't moved from the UK beggars belief, given the huge differential caused by the exchange rate? Or is that political too? And getting back to politics and to add insult to injury, the one area where we seemed to have a price advantage over our EU neighbours our government wants to screw us there too. e.g. petrol.