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Inflation data gave us a pleasant but temporary break from geopolitics this week, as the consumer prices index (CPI) fell to 1.7 per cent in September, down from 2.2 per cent in August according to the Office for National Statistics (ONS). This is the first time inflation has fallen below the Bank of England’s 2 per cent target rate since April 2021, while the figure was well below the 1.9 per cent rate expected by economists. It was even further below the 2.1 per cent forecast by the Bank of England.
No move yet from the Bank of England who next meet on the 7th November, however the European Central Bank (ECB) has cut interest rates by a quarter-point to 3.25 per cent, amid signs that growth and inflation in the Eurozone are weakening.
Thursday’s move took Eurozone rates to their lowest point since May 2023 and followed a cut of the same size at the ECB’s meeting last month While the cut was widely anticipated, the ECB said it was based on an “updated assessment of the inflation outlook”. That suggested price pressures could now be weaker than the central bank forecast last month, when it predicted inflation would rise towards the end of the year but dip back under its 2 per cent target in 2025.
Whilst inflation is indeed falling, price pressures remain. We wrote last year about the “Big Mac Index” – a representative global view of the cost of this simple burger to show how different economies are priced. It can also be used as a good sense check on global inflation. McDonalds was in the news this week as it's filed suit against the four biggest US meatpacking companies, alleging that they had conspired to push up the cost of ground beef. If inflation is finally slowing, why do price rises keep coming at a higher than expected level? One reason consumers feel so squeezed is what has come to be known as “cheapflation”. There is growing evidence that the prices of inexpensive goods rose faster than more expensive varieties of the same goods during the pandemic. Price differences between brand-name and discount versions significantly narrowed and have stayed that way. That form of inflation punishes those consumers who are least able to absorb the pain.
Shoppers who employ the traditional tactic of trading down to save money reap fewer benefits, says Harvard’s Alberto Cavallo, co-author of a study that used food price data from large store chains to document cheapflation in 10 countries including the US. Democratic presidential candidate Kamala Harris has sought to capitalise on this resentment by promising the first ever federal ban on food price “gouging”.
Kamala Harris herself has drawn some comparison to our own Prime Minister, Sir Kier Starmer. They are of a similar age, and both were previously prosecutors. Both gave the impression of being leftwing before realising they need to be a little more flexible.
Given these parallels, it is natural to file Kamala Harris and Keir Starmer alongside Clinton-Blair, Reagan-Thatcher, even Kennedy-Wilson, as one of those symmetrical pairings of US and UK leaders, although she does need to get elected first. That is less certain than it was two months ago. Part of the problem is that she is unlike Starmer in one important respect. Starmer might underwhelm and even bore, but he tends not to confuse. This isn’t true of Harris, whose central defect is a lack of understanding and openness in her views — hers is the much harder sale to swing voters, as it asks them to take on trust an unknown quantity. It asks them to do so over a candidate who is highly recognisable on account of having served a White House term before.
In the previous election, Joe Biden’s economic position was set out well in advance. Likewise, if Donald Trump goes on a deportation and tariff spree, no one can claim to have been misled. If anything, US presidential candidates offer too much detail at the campaign stage, given that lots of it won’t survive contact with Congress. The point is to give voters a sense of their instincts: their likely gut responses to the unexpected events, such as Covid or the Ukraine war, which tend to determine a presidency. What are Harris’s? Even in outline terms, does she stand for continuity — she’d better not, given Biden’s ratings — or change? In this week’s interview with Fox news, she spoke candidly to explain that she was not a continuation of Biden.
Swing voters are left to decide if she is simply a leftist who is hiding it. Starmer didn’t allow such doubt. Starmer was always clear that he was a social democrat who was going to put taxes up (maybe not as much as we thought), offset the damage to incentives by deregulating in some areas, let the Brexit dog lie, and talk a good game about public sector reform.
Harris remains in front, but not by as much. Her running mate, Tim Walz, has a regular guy patter that has become old quite quickly, as though he has attended a course called ‘How To Be a Regular Guy’. The decision not to choose as running mate Josh Shapiro, the Pennsylvania governor who has high approval ratings in that swing state, is a possible error — like running Hillary Clinton in 2016, or pretending Biden had another term in him — that Democrats seem to keep making.
Harris’s comments on Fox this week had a clear plan. If she doesn’t define herself, it is reasonable for voters to assume she is just offering a second Biden term. She has three weeks to convince voters.
Finally, I return to McDonald’s, who says that the average price of a Big Mac has risen 21 per cent since 2019. This underlines the inflationary pressures we have been facing. It is true that my life on the road has occasionally been supplemented with a cheeky McDonalds, and as it appears to be about the only thing Rachel Reeves isn’t considering taxing on the 30th October, I see no reason to stop quite yet! Do have a good weekend.
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