It must I think have been 1968 – the Year of Revolutions – when inflation as a problem was just beginning to be a worry for economists & policy makers in the affluent west, & we had a visitation from the IMF.
Over dinner one evening the head of the IMF delegation asked me ‘as a housewife’ whether I had noticed prices rising in the shops. Help! I hadn’t a clue. Call yourself an economist?
In retrospect I can be less harsh on myself. Just about everything in my life had changed – marriage, motherhood, country, job, different ways of shopping, new, (& recently devalued) currency. How could I be expected to notice a few cents here or there.
The oil price shock came five years later & back home in the UK prices rose fastest in 1975, touching almost 27 per cent in August and clocking up 24.2 per cent over the year as a whole.
And yet still, in one sense, I noticed very little in terms of prices rising in the shops.
Part of the reason was that my salary (helped by promotion) rose better than in line with inflation. I can still remember the feeling when I became a £5,000 a year woman. Although I understood that it wasn’t what it seemed, nevertheless, only a decade after I graduated into a world where £1,000 was a very nice salary, thank you, & postmen earned £13 a week, it was a truth universally acknowledged …
Prices clearly were rising in the shops but my expenditure did not immediately rise by anything like 25 per cent. I think there were two main reasons for this. The first is that there are always ways to economise without suffering any major drop in living standards & the second is that we still shopped mainly with cash. So the £20 which I withdrew each week put its own limit on what I would spend.
At the time events such as the Three Day Week, the Great Sugar Shortage & then the Winter of Discontent made much more of an impact. It is a moot point how much we gained in our pay packets as a result of the trade union militancy of others.
We also learned lessons about buying now & the benefits of managing cash flow & of shopping in bulk. Far better to buy at today’s prices, stocking up even on things such a baked beans & toilet rolls, than to be frugal & buy what you need only when you need it. We learned that a credit card was a useful payment method as long as you paid each bill in full as it came due. Even after the Sex Discriminatin Act passed into law I truly expected to be turned down for a second card –
No! Too much credit will get you into trouble, young lady – but two different account dates & a thirty day settlement period meant that judicious juggling would give you 60 days to pay. Store cards also helped not only in the extra scope for buying at today’s prices & paying with tomorrow’s inflated salary but in the extra services such as free delivery & sales previews.
The new plastic cheque guarantee cards enabled you to draw cash from any bank branch & your cheques went through clearing rather than the counter ledger, thus giving you three or four days grace – especially useful when funds were running low at the end of the month.
What was less welcome was the fact that I also became a 60% tax payer at the margin. Friends & colleagues were astonished when I told them this –
they certainly were not. The explanation was that almost all of them had married man’s & child allowances and, even more crucially, relief on the whole of the interest they paid on their mortgage. Tax brackets had otherwise not increased in line with inflation, so my basic salary plus the interest I earned on the rapidly accumulating cash in the Building Society pushed me two or three levels over the basic rate. But I felt rich, despite the rising prices & despite the fact that economists kept pointing out that real rates of interest on savings were negative.
Resistance to higher prices comes in part from the built in value meter which we each have; if I think that £20 is quite enough to pay for a new winter coat then it will take time for me to adjust to the idea that £25 or £30 is not extravagant. Rising prices for all the other things you need – utilities, travel to work, shoes for growing children - are not so easy to avoid & will just have to be paid.
Hardest of all is the price of housing, & we soon began to realise how inflation disturbs this market & makes decision making much more difficult, not at all the cosy progression up the ladder we had thought it would be.
One friend had just moved to a new house following the birth of his third child. As well as extra space he was determined to move to a very good area & so took a stretch, one which meant that, unusually for those days, he had to go through a mortgage broker, no staidly cautious building society manager being willing to accommodate him.
No sooner had the family moved in than interest rates jumped – memory tells me from 7% to 11%. His wife had to take a part time job & I think they were living on bread & cheese for a while. He certainly was very green about the gills.
Another friend was wrestling with completely the opposite problem. He had married very young, right after graduation, & when children came along he bought the only house he could afford, a Victorian terrace in a town then considered to be at the limit of daily commutability. Building Societies did not lend on that sort of house, so he had to turn to the local authority & carry the risk of a fixed rate mortgage. His monthly payments of £25 took a big bite of his £80 salary. By the mid-70s, while others could not believe that he could be paying such a ludicrously small amount he was wondering if it were too risky to make the move to something larger in such uncertain market conditions.
This was the beginning of what has persisted to this day, & makes it difficult to include housing costs in the measure of consumer price inflation: the costs of housing vary between individuals in ways that have little to do with the value of the housing services consumed. Identical houses in identical streets may be priced very differently for the occupier, depending on when it was bought & how it was financed; on whether it is owner occupied or rented, & whether that rent is paid out of income or housing benefit. Just as though your supermarket bill depended not just on the prices of the goods you were buying but on some, not random, but arbitrary or capricious adjustments applied as you go through the checkout.
[To be continued]
