Inflation

Oral Answers to Questions — National Finance – in the House of Commons am 12:00 am ar 16 Mai 1991.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury) 12:00, 16 Mai 1991

To ask the Chancellor of the Exchequer which index of inflation he treats as the most reliable; and whether he has any plans for a new index.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

I pay close attention to a range of indicators of inflation. I am currently considering the recommendation of the Select Committee on Treasury and Civil Service for a new index of consumer prices comparable with that of our European Community partners.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

When the retail prices index is published tomorrow, will the Chancellor draw attention to the advice of the present Prime Minister, given a year ago, that the RPI is an inaccurate measure of underlying inflation? Is it true that the Bank of England has developed a new index of contemporary inflation which suggest that underlying inflation is remaining stubbornly high and may be influencing the Governor's current advice to the Government?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

On the first point, the RPI could hardly measure underlying inflation as it is a measure of headline inflation. It is the measure which matters to wage bargainers and to consumers, so it is good news for the country that it is coming down. It matters to pensioners, it matters to savers and it matters to British industry. All that the hon. Gentleman does is sit and nit-pick. We have said consistently that when looking at inflationary pressures we look at the underlying rate. The underlying rate, excluding mortgage interest payments, has come down by 1 per cent. in the past six months. We are winning the battle against inflation and we shall go on winning it.

Photo of Charles Wardle Charles Wardle , Bexhill and Battle

Surely the headline rate is what matters most to people with mortgages and community charge bills to pay. Is not the underlying rate likely to take a little longer to drop because of high wage settlements last autumn? Is not it likely to come down anyway later in the year if current policies are maintained?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

My hon. Friend is right. Obviously, the underlying rate comes down less quickly than the headline rate. The underlying rate did not go up nearly as much as the headline rate did, so there is no great issue to be made out of that. My hon. Friend is also right about earnings in manufacturing industry. It is extremely good news that, in the past two months, the rate of increase in earnings in manufacturing industry has gone down by 1 per cent. That shows that people are adjusting to inflation coming down.