Rail fare rises show inflation ‘tax’ in action

he American economist Milton Friedman described inflation as taxation without legislation, by which he meant that if they were not matched by a commensurate increase in people’s incomes, rises in prices of goods and services would erode our standard of living. Controversial he may have been, but Friedman’s insight provides the backdrop against which to consider the effect on consumers of both the current level of inflation and of the projections for the cost of living in the next year or so.

First, the impact of the Retail Price Index (RPI) for July, which remained at 5 per cent, and had an immediate impact on the public as the increases for regulated rail fares are based on it. Regular rail travellers in Scotland will baulk at the prospect of paying around 6 per cent more for tickets when the levels of service leave much to be desired. On the other hand there was some potential good news, with the Centre for Economics and Business Research predicting retail food price inflation will fall from the peak of 5.7 per cent in the second quarter of this year to -1.8 per cent by the third quarter of 2012.

It might therefore be argued that while one element of expenditure goes up, another is to fall, easing the pressure on hard-pressed householders. However, as the rail fare increase is a certainty and the food inflation figure is a projection, these figures will give little comfort to ordinary people who see prices rising while their salaries fail to keep pace with inflation. They would be justified in concluding they are being taxed without legislation.