Public servants on strike, the Chancellor under pressure to cut public borrowing, property prices on the rise. A new approach to managing inflation is needed for the future prosperity of the West Midlands, says Andrew Lydon.

If public service workers have to settle for a two per cent pay increase this year, as Gordon Brown wishes, their standard of living will, in most cases, be eroded.

But this would hardly be anything new. Most working families could run their household on one main income until the 1970s and 1980s, whereas few can manage this now.

Prices and the prices of property have clearly eroded the economic position of most of the subsequent generation. All the official inflation estimates put inflation at between three and four-and-a-half per cent.

And this is where inflation control becomes a problem for the UK, where it is not in other comparable G7 countries.

We have three regularly published inflation indices; the Retail Price Index, the version of this index without mortgage interest payments, and the Consumer Price Index, which has been adopted more recently.

The Bank of England has just woken up to the consequences of this.

Mervyn King, the Governor, has expressed concern that in the coming pay-round, representatives of the employees will take the higher RPI rate as the one to aim at, in order to safeguard their standard of living.

People have every reason to believe inflation is clearly being under-represented. There has been a crisis of confidence in the official inflation statistics brewing for some time.

But it has not been fostered by the trade unions. Had the union leaders ever fostered discussion of the erosion of living standards, they would have risked creating expectations among their members around their ability to do anything about it – expectations they had little reason to feel they could meet.

Hence, even though the trade union bureaucracy had been involved in oversight committees for the RPI for much of its history, they have never subjected it to much scrutiny.

It’s embarrassing.

It has been the middle class that has stirred up the issue of flawed inflation statistics.

It is claimed the recent rise in energy prices is felt particularly by people with bigger homes and cars. While having three different official rates of inflation virtually invites disbelief – that does not mean that this particular line of criticism based on the financially better-off is one that holds water.

The people who are priced out of owning their own home, even with two good incomes are the real victims of the failure to properly register and deal with inflation.

People for whom trade unionism has been largely irrelevant.

Strangely, the United States – where trade unions have had hardly a smell of the corridors of power since the 1950s – shows us a more accurate system for tracking inflation as