Peter Jackson column

Aug 18 2005 By Peter Jackson, The Journal

Baggage handlers on a wildcat strike and the inflation rate up - it's like the 1970s all over again.

Well, maybe not quite. The Heathrow strike is notable because it's so rare - not like the old days when we had militants like Red Robbo, Red Ken, Red Ted and Red Rum.

And as for inflation, it's 2.3pc. A measly 2.3pc - call that inflation for goodness' sake!

But everything is relative and this is the highest rate since 1997.

Those of us who drive take it seriously and we are not surprised to learn rising fuel costs are the main inflationary driver.

At 90p a litre, petrol has added 0.13% points to the annual consumer price inflation rate; it has also pushed the eurozone's inflation above the European Central Bank's target.

So why is the oil price rising? It's not because we're running out.

According to the International Energy Agency, there's enough oil and gas in the ground and under the sea to meet demand for the next quarter of a century. Nor is it because we invaded Iraq (although I have a shrewd suspicion it didn't help).

No, the reason is we are victims of our own success and global economic expansion is driving the biggest increase in demand for oil for 24 years.

China alone saw its thirst for oil increase by 20pc last year alone.

On the face of it, this is bad news for those who had been rubbing their hands in anticipation of a further cut in interest rates.

It is generally felt the Bank of England's Monetary Policy Committee, whose main duty is to keep inflation within narrow bands, will not risk stoking it further by making money cheaper.

But the MPC might also be looking at other economic data - such as last month's figures.

They show the worst performance by the UK economy for more than 10 years, with year-on-year growth the lowest since the first quarter of 1993, when we were still groping our way out of the last recession.

So, with inflation and slowing growth, surely we can't be seeing a return of that other 1970s ghost - stagflation?

Hardly - back then we would have dreamed of inflation at a lowly 2.3pc and growth at 1.7pc.

Times are changing, however, and I still think Gordon Brown should have got out of the Treasury right after the last General Election.