Anti-Inflation Policies in America and Britain

Report Outline
Anglo-American Fight Against Inflation
U.S. Effort to Curb Wage-Price Rises
British Approach to Inflation Problem
Pressure on the Pound and the Dollar

Anglo-American Fight Against Inflation

The United States and Great Britain, whose military commitments span the globe and whose currencies support the international monetary system, are intent on maintaining prosperity without inflation. To that end, both countries have called on business and labor to exercise voluntary price-wage restraint. Price and wage increases (and price cuts), London and Washington insist, should reflect the average annual rise in labor productivity. For example, if nationwide productivity should rise by 4 per cent a year, wages may be increased at the same rate without generating inflationary pressures.

The danger signs of inflation have been growing more visible in both America and Britain during the year now drawing to a close. The British retail price index (Jan. 16, 1962=100) has risen almost four points, from 109.5 in January 1965 to 113.1 in October. Major British wage increases in 1965 have generally been well in excess of gains in productivity. Apprehensive lest the wage-price spiral get out of hand, Chancellor of the Exchequer James Callaghan warned Nov. 29 that the government might have to take deflationary action. Although Callaghan did not specify what steps he had in mind, the government could raise income and sales taxes, restrict installment credit and curtail public spending. The House of Commons approved on Nov. 29 a one-year extension of the surcharge on imports, which had been imposed more than a year earlier to restrict consumption and to narrow the country's substantial trade deficit.

Inflationary trends in the United States have been less pronounced. The American consumer price index (1957–59=100) climbed to a record high of 110.4 in October, an increase of 1.8 percentage points over the same month last year. By contrast, the average annual increase from 1960 through 1064 was only 1.2 points. Arnold Chase, assistant commissioner for prices in the Bureau of Labor Statistics, said on Nov. 30, however, that the rise in the index over the past year was not inflationary. But he conceded that “This would appear to be as much [of] a rate increase as we should have” and that there would be reason for concern if it accelerated.