As inflation makes an unwelcome re-lturn, just how workers respond to it has become overwhelmingly important. Alistair Darling, the chancellor of the exchequer, exhorts wage restraint, and with reason. The last thing he wants-or Britain needs-is a pay-price spiral that would turn a temporary surge in inflation, driven by higher global food and energy costs, into a more persistent and general national affliction. Yet the soaring bill for essentials is bound to make Britons worse off, and workers are not slow to spot it.rnUntil recently, fear of an inflationary wage-price spiral seemed misplaced. Inflation, measured by the retail-prices index, moved up sharply in the second half of 2006 and has generally remained above 4.0% since then (see chart). Despite this, average-earnings growth has stayed remarkably docile, thanks partly to a flexible labour market and partly to confidence that any upsurge in inflation would peter out.rnThat now looks set to change. A recent strike by tanker-drivers resulted in a bumper two-year 14% pay rise. This has encouraged militant talk from public-sector unions, who feel aggrieved that the government has insisted on very low pay deals (around 2%) this year and threaten to strike. Some point to big bonuses and pay rises for even conspicuously unsuccessful company bosses as one reason why they should refuse stingy deals themselves.
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