The Central Statistics Office informed us that when inflation was measured back then, the “basket” of goods and services included black-and-white TVs, telegrams and vinyl LPs.
The OECD added the stark warning of famine in those parts of the world which are especially dependent on grain supplies from Russian and Ukraine to its Economic Outlook.
The year referenced this week, 1984, saw average inflation of 8.6%. The rate of inflation had halved within two years, but yes, you’ve guessed it, at the cost of a deep recession and everything that came with that in terms of emigration and absence of investment in public services.
This is in contrast to the 1970s when many governments across Europe believed they could ride through the inflationary cycle without taking steps like increasing interest rates to slow things down.
I’m indebted to Dr Ciarán Casey for referencing on Twitter a fascinating study the CSO carried out on the history of the industrial wage in Ireland (The Average Industrial Wage and the Irish Economy).
It shows that in the 1970s nominal wages went up annually at an average rate of just over 18%. Even after inflation took its toll, real wages rose by an average of 4.8%, which is described as the biggest increase in purchasing power since records were compiled in the 1930’s.
The eventual hangover for this spectacular wage-price spiral was reaped in the recession of the 1980s when real wages only increased by 0.9%, which was the lowest ever annual rate of earnings growth.
Wages are already increasing across many private sector sectors in Ireland and negotiations on public sector pay are entering a new, more intense, phase next week. But they’re unlikely to settle on anything even close to what we saw in the 1970s.
The last wild card is the original match which sparked Europe’s inflation spiral: the war in Ukraine. The world found different ways since the oil shocks of the 1970s of circumventing and adapting to the impact of wars in the Middle East.
Russia’s invasion of Ukraine is different and not only because the spread of commodities affected by the war and the structural reliance of much of Europe on Russian gas.
ECB President Christine Lagarde made an interesting comment at the end of this week’s post-Governing Council press conference. In complimenting the head of the Dutch central bank, Klaas Knot, for hosting this month’s meeting, she said that “geography matters”.