Bob The Builder & The Cost of Living Crisis

Who can fix it?!

Bob had become aware of a lot of talk of inflation, recession and the cost of living crisis. Usually, he was too busy to notice what was going on in the news, but work had dried up a little in recent weeks.

Given that he had a bit of time on his hands, Bob thought it would be wise to understand what was happening in the economy and what it meant for him and the team. 

After an afternoon of research and planning, Bob was concerned. He decided that first thing tomorrow morning, he would get the gang together and try to explain to them what was going on and what they needed to do.

The following morning, nearly everyone was there, expecting Bob to instruct them on which job was next on the schedule. They hadn't done any work since Bernard and Brenda's extension, and they were itching for something, having spent the last few years as busy as they'd ever been.

"Right, looks like everyone's here. But where's Lofty?"

"Diesel hit £1.90 a litre, Bob," Wendy responded. "He couldn't afford to fill himself up."

"Righto. Well, anyway, we should probably get started. Unfortunately, no work has come in just yet. Still, I wanted to get you all here to chat about some of the economic conditions we're facing and some unfortunate changes we'll need to make."

The team greeted Bob with blank faces, except Spud the Scarecrow, who seemed to contain a sob before covering his face with his hands. 

"Spud... what's wrong?"

"Oh, Bob... it's awful," he spat. "I was doing so well, but the last few weeks have just been dreadful". 

The team waited to hear more. 

"It's my crypto portfolio, Bob!" Spud continued. "Back last year, I had some coins that were worth thousands. Then I put it all into Terra, which has gone to zero... I'm financially ruined!" 

Bob hesitated before replying, "Well...erm... what have you learned?"

"OH, I DON’T KNOW, BOB", Spud screamed before running back to Mr Pickles' farm.

The rest of the group awkwardly looked around and back at Bob, waiting for him to continue. 

"So, as I said, the economy is changing, and we're starting to feel the effects. Inflation has hit 9%, and the Bank of England think it could hit 10%. That's the highest it's been in this country for over 40 years!"

The blank faces remained, and there was no Spud to break the baffled silence this time. Bob could see he was going to need to do this slowly. 

"Inflation measures and shows how much prices of goods and services are rising in an economy. So the fact that inflation is the highest it's been in 40 years means the price of things are rising faster than they have in a very long time."

"A little bit of inflation is ok," he continued, "in fact, the government has a target of 2%. Rising prices signify a healthy, growing economy, especially where it's ‘demand-pull’ inflation. But what we see now is 'cost-push' inflation, so prices rise because of external factors, rather than a healthy increase in demand".

Finally, someone else said something. 

"If we need to change the balance between push and pull, Bob, can't we get Lofty to set up a winch and some beams to re-balance it?" suggested Scoop. The rest of the team seemed enthusiastic about some work to do. 

"Unfortunately not, Scoop. This isn't something we can fix. The factors driving inflation are being seen in many countries worldwide. Governments responded to the lockdowns by making money easier to come by. That's partly why we had so much work coming in over the last couple of years. But now people are paying for it. On top of that, we've got the Russian war and global supply-chain issues which mean supplies are harder to get hold of, further increasing prices."

"So, what does this mean for us, Bob?" Asked Wendy.

"Well," replied Bob, "I think two main things. First, it means that everything is going to cost us more to do. Second, perhaps more importantly, it probably means there's going to be less work coming in as people and businesses cut back on their expenses".

"So things are more expensive... and we're going to have less money coming in to pay for it? That doesn't sound good at all." Wendy replied. "What can we do about it, Bob?"

"All we can do is prepare accordingly", Bob replied. "We need to create a bigger runway."

"Oooh, did we finally get the Heathrow job, Bob?" Muck asked.

"No, Muck. We need to create a bigger cash runway. That means extending the time we can manage with our money, assuming no significant income comes for a while. It's important to have cash saved for emergencies."

"I think there are two main areas we should focus on." Bob continued. "Reducing our spending and looking out for jobs that are needed regardless of what's happening with the economy." 

"Wasn't Mr Sabbatini going to have to renovate his bakery, Bob? Surely that will be needed regardless of all this going on?" Someone asked.

"Mr Sabbatini and his family went back to Napoli last year," Bob replied. "Their visa expired, and because of Brexit, they had such trouble extending it, they decided to move home.”

"All this talk reminds me of when that MP came and visited the village," Wendy pondered. "He promised all sorts of large infrastructure projects were coming to this part of the country, didn't he, Bob?"

"I suppose the levelling-up agenda hasn't made it as far as Bobsville just yet".

The gang seemed to be starting to grasp the problem Bob was describing.

"Bob, when you say inflation hit 9%... what does that mean? Everything in the shops and supply yard will go up by 9%? Can't we just charge everyone 9% more?" Dizzy asked.

"Great question, Dizzy!" Bob replied. He was glad to see the team were starting to engage. "But not exactly. Inflation is measured using a basket of goods; 9% is an average of the increase of the goods in that basket."

"Some prices are going up much higher than 9%. For example, there's been a 54% jump in gas and electric prices since the start of April!"

The team were starting to get frightened. "Are we going to be alright, Bob?" a couple of them asked in unison.

"We should be fine if we're sensible and do the right things," Bob replied. "We've saved some money from our jobs over the last couple of years, and we've got each other to lean on to get through tough times. We'll also continue to reduce, re-use and recycle, as always! For others, I fear this period won't be so easy."

"Like who, Bob?"

"Well, there are lots of people out there who aren't as lucky as us. We're fortunate to have a nice yard and some savings behind us. I read yesterday it's estimated that 1.5m households in the UK have higher food and energy bills than their disposable income."

The team looked shocked and a bit sad at hearing that.

"What can these people do, Bob?" Roley asked. "It doesn't seem right that this should be happening in our country. Can they ask to be paid more for their jobs?"

"I don't think that’s the worst idea Roley," Bob replied. "But Boris Johnson recently warned businesses against paying people more. That it could lead to a wage-price spiral". 

Dizzy started to say something in response to Bob's warning about a spiral, but he decided against it this time.

"A wage-price spiral is a situation in which people are paid more in response to higher prices. But people being paid more and having more money can lead to further inflation. It’s sort of what lead to it in the first place."

"So what can the government do, Bob?" Scoop asked. "There must be something?"

"Well, that's the thing," Bob replied. "In a similar way to the wage-price spiral, a lot of the things that a government would typically do in the face of inflation aren't good options right now."

"Typically, an increase in interest rates is the standard response to inflation," Bob explained. "That's because higher interest rates make it more expensive to borrow money and, therefore, more difficult to spend, which slows things down." 

"However, in this instance, there is fear that increasing interest rates will slow spending so much that we will fall into a recession. A recession is two quarters of negative economic growth. We’ve just had one quarter, so it's likely another, and therefore a recession is coming."

Bob realised he'd just spent a lot of time talking about things like interest and, funnily enough, could see the team losing exactly that. He was pleased they were at least a bit wiser on what was going on than they had been at the start of the day.

"Sounds like the governments got a big job on their hands then, Bob?"

"You can say that again."

"So Bob..." Muck asked thoughtfully, "...can they fix it?"

Everyone looked at Bob. Who hesitated.

"Unfortunately, I very much doubt it."