I just got an email from my mum about her firm unexpectedly adjusting their pay to reflect increased inflation in the UK (http://www.statistics.gov.uk/cci/nugget.asp?id=19).

Inflation becomes threatening when expectations in the economy change significantly. The big oil shocks of the 70s triggered huge wage price spirals (prices rise, salaries rise, prices then rise, salaries rise more) and all of a sudden we have runaway inflation which screws with a lot of things in the economy (that’s my technical explanation! I shudder to think what my old Econ tutors at Oxford would think if they read this).

Anyway, there’s (anecdotal) evidence this is now happening. Not really good times, high inflation really messes with the efficiency of the overall economy.

Incidentally, the pay rise was below the RPI rate, so this was a tad cheeky, they just reduced everyone’s real wage. Time for mum to move to Canada.