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The fall in import prices was
rising rather faster than output. sufficiently large to offset the rise in home costs, and during most
Fragez lo ae Best half of 1954 prices weken Between
the years 1952 and 1954 final prices rose by under 2 per cent. But after the middle of 1954 import prices began to rise again, while the upward trend of home costs became more rapid. The combined result has been the renewed upward pressure on costs and prices which has continued into 1955.
10. This brief summary of the course of our final prices in the past. ten years has inevitably compressed into a few paragraphs a highly complex process. But there are certain features which stand out :-
:-
(a) Since 1946 the prices of the final output of goods and services of all kinds have risen by about 50 per cent. Of this increase about one-eighth is attributable to the net effect of changes in subsidies and indirect taxes. The remaining seven-eighths have been determined by movements in import prices and in our own costs of production. (b) Since 1946 the prices of our imports of goods and services have risen by over 60 per cent., partly as a result of the devaluation of sterling in 1949. In the same period money incomes per unit of output have increased by about 40 per cent. But for the economy as a whole our own costs of production, as measured by money incomes per unit of output, are between four and five times as important as import prices in terms of their effect on final prices. Thus, although the rise in import prices has been greater than the rise in our own costs of production, it is the latter which have been responsible for by far the greater part of the increase in our final prices.
(c) Although over the years 1946 to 1954 as a whole import prices have risen by over 60 per cent., they have fluctuated considerably during this period, sometimes rising and sometimes falling. Whenever they have risen, they have not only added directly to our price level, but also initiated demands for higher incomes, the result of which has been greatly to magnify the immediate impact on the price level of the rise in import prices themselves. This process has proved irreversible; and it is this which has established, from time to time, a new, and permanently higher, level of prices in this country. That level has never fallen when import prices have fallen, because the gain from lower import prices has been more than offset by the rising trend of incomes and costs at home.
11. Much of the rise in prices in the United Kingdom since the war has been due to the quite abnormal world conditions which were associated first with recovery from the war and subsequently with events in Korea; and our own experience has been shared in varying degrees by most other industrial countries. But these same tendencies have also shown themselves in this country-to a greater extent than in many other countries during the past eighteen months when more normal conditions of peacetime full employment have prevailed. That is what gives ground for concern. For if these tendencies persist, and incomes go on rising faster than output over economy as a whole, full employment will continue to be associated with rising prices and with all the consequent economic and social strains which are discussed in Section V.
the
j.
IV. Changes in the Distribution of Income
12. Thus, of the factors which determine the level of final prices the most important is our own costs of production, that is, our own incomes and
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