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Chapter III. Some Aspects of the Present Inflation

Published online by Cambridge University Press:  26 March 2020

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Extract

Table 1 shows a set of cost and price indices, indicating their percentage rate of change in the four most recent years and their trend rate of increase in the preceding seven.

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Articles
Information
National Institute Economic Review , Volume 55 , February 1971 , pp. 38 - 51
Copyright
Copyright © 1971 National Institute of Economic and Social Research

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References

Notes

note (1) in page 39 It may seem surprising that the table does not show a fall in unit non-wage factor costs in the last period. That it does not is due to the fact that this item includes not only gross trading profits (which did in fact fall—gross, as well as per unit of output in this period) but also rent and self- employment incomes (which rose) as well as the surpluses of public corporations and enterprises. That the rise due to indirect taxes is so much larger in 1968/9 than in 1967/8 (it might have been expected to be about the same) is due to the literal accounting nature of the exercise. If SET is account ed for on an ‘accrual’ rather than on a payments basis, which is how it is treated in the national accounts, this discrepancy would be ironed out. Presumably, in practice, firms will tend to have based their prices on an accruals-based concept of SET, so that variations in profit margins absorb some of the temporary rises and falls in recorded net indirect taxes.

note (2) in page 39 The previous tendency for export prices to rise less than domestic prices had, however, never applied to the United Kingdom with quite the same force as to the generality of overseas industrial nations. See National Institute Economic Review no. 43, February 1968, page 23.

note (1) in page 40 See for example, National Institute Economic Review no. 47, February 1969, pages 27-29, no. 51, February 1970, pages 34-36, and in no. 54, November 1970 the article by J. K. Bowers, P. C. Cheshire and A. E. Webb, ‘The change in the relationship between unemployment and earnings increases’.

note (1) in page 41 This follows the investigation by Bowers, Cheshire and Webb (op. cit) which indicated that since 1966 and until 1969 vacancies continued to give a reasonable fit in equations of this type, where unemployment did not.

note (1) in page 42 W. L. Smith ‘On some current issues in monetary economics: an interpretation’, Journal of Economic Literature, Vol. II, no. 3, September 1970.

note (2) in page 42 R. M. Solow, Price expectations and the behaviour of the price level, Manchester University Press, 1969.

note (3) in page 42 Michael Parkin, ‘Incomes policy: some further results on the determination of the rate of change of money wages’, Economica, New Series Vol. XXXVII, no. 148, November 1970.

note (4) in page 42 Seasonal and ‘incomes policy’ dummies failed to perform well and were omitted from the regressions quoted in table 4. Central difference expressions of the rate of change were used.

note (5) in page 42 An additional argument for doing this would be that it is now apparent that, relative to unemployment, vacancies suggest a much more buoyant labour market in 1967, 1968, and 1969, and some of the assessments of incomes policy used unemployment-related equations to check policy effectiveness. These equations would presumably have tended to give rather low predicted figures of the rate of wage and earnings increase in the absence of incomes policy, leading to unduly low estimates of policy effects. But, for what it is worth, the earnings/vacancies relationships quoted in table 3 above do not show a significant effect when incomes policy ‘dummies' are used, and the estimated effect, even taken at face value, is extremely small.

note (1) in page 43 Gösta Edgren, Karl-Olaf Faxén and Clas-Erik Odhner, ‘Wages, growth, and the distribution of income’, Swedish Journal of Ecvnomics, 1969.

note (2) in page 43 cf. G. D. N. Worswick, ‘Services and Inflation’, Manchester Statistical Society, 1962.

note (1) in page 44 The estimates were obtained by subtracting from the value of expenditure at current market prices the net indirect taxation as given for each group in the Blue Book. The resultant current price estimates were then deflated by the constant (1963) price estimate to obtain the deflators. As the constant price estimates were only available at market prices, the procedure involves assuming that the average rates of net indirect taxation for each group in 1963 remained constant throughout.

note (2) in page 44 This in turn implies that the relative apportionment of expenditure on different goods and services remains unchanged at the zero overall rate of price inflation.

note (1) in page 47 Ibid., table 142.

note (1) in page 48 ‘Redistribution’ is implicity defined here as a narrowing of differentials in percentage terms. Redistribution of this kind is, of course, quite compatible with a widening of differentials in absolute terms.

note (2) in page 48 Comparison of income shares within the corporate sector might have been preferable, but 1970 data on this basis were not available. The annual data for 1959-69 show, however, that the trends and year-to-year movements in corporate income shares are very similar to those in total income shares shown in the table.

note (1) in page 49 Deviations of the profits share from its trend were regressed on deviations from trend GDP and the 1969 and 1970 observations were then predicted from the equation. The results suggested the order of magnitude referred to in the text.

note (1) in page 49 National Institute Economic Review no. 51, February 1970, page 27.

note (1) in page 50 Ibid.

note (1) in page 51 The rate of growth of the sum of public authorities' current spending, investment, and exports, is forecast to be 2.7 per cent again this year, and next year 3.1 per cent.