The signs now are that much of the economy is suffering from an upward spiral of wages and prices. The rate of consumer price inflation remains stuck at over four per cent and there is no indication that it will quickly fall. This weekend brought news of a sharp rise in electricity prices - 13.25 per cent for domestic users - which will add another 0.2 of a percentage point to the consumer price index.
It is an unwelcome trend at a time when growth is slowing, unemployment is rising and businesses are struggling to remain competitive
In addressing this issue competition policy is one of the more potent tools available to policymakers. Encouraging competition may have limited impact in the short term, but - as is evident in sectors as diverse as telecommunications and air travel - given time it can have a dramatic and sustained impact on price trends. Over the past couple of years policymakers have, somewhat belatedly, started to act to break up monopolies and encourage competition. A new Competition Act and a beefed-up Competition Authority are central parts of this new policy approach. However if it is to succeed, the authority will need the active backing of the Government.
The Competition Act gives the authority important new powers, in particular allowing it to initiate investigations itself. Meanwhile, after a period when it was starved of the necessary resources, the authority has now expanded its staffing, adding new expertise in areas such as investigation and accountancy. It also appears to be taking a pro-active approach; for example, in its recent decision to initiate studies of the banking and insurance sectors.
Even with the authority in place, the Government still has a key role to play. Government policy, for example, has introduced competition into the telecommunications market, but has been less successful in encouraging new entrants to the electricity market. Political support will now be essential if the authority is to boost competition in protected areas such as the legal profession - and in turn this could help to hold down spiralling insurance costs, which are having a significant impact on competitiveness.
Meanwhile the authority, the Government and Brussels all have a say in another crucial area of competition policy - the regulation of mergers. Here policy must balance between protecting consumers and ensuring that businesses can reach a scale necessary to compete on world market. Signals of political opposition to any proposed merger of the two main banking groups appear, fortunately, to have moved this off the agenda. There is one other group, of course, which can have a significant impact on the competitive environment - the consumers. As complaints across Europe at price increases which went along with the introduction of the euro demonstrate, consumer vigilance can play a key role alongside the more effective regulation of competitiveness.