Rate of inflation - how is it worked out?
Discussion
The government has announced yet again that we have an inflation rate of a mere 1.6%. Now from experience I take most things they say with a tiny pinch of salt but even with the salt it seems a little difficult to believe. Needless to say the figure rarely changes by much so as not to send shock waves through the economy but even so surely it must be based on something.
I will concede that it is cheaper to buy things like DVD players today than it was a year ago but how many DVD player do you buy in a year? I would have thought mortgages would have been one of the biggest bills most people pay, they have certainly gone up. I cannot think of a single bill I have paid that has gone up by less than 5%, council tax alone recently went up by 24% in one year.
So, does anyone out there know how the “official” inflation rate is arrived at and what is actually included in it?
I will concede that it is cheaper to buy things like DVD players today than it was a year ago but how many DVD player do you buy in a year? I would have thought mortgages would have been one of the biggest bills most people pay, they have certainly gone up. I cannot think of a single bill I have paid that has gone up by less than 5%, council tax alone recently went up by 24% in one year.
So, does anyone out there know how the “official” inflation rate is arrived at and what is actually included in it?
The Government has switched to a new measure of inflation recently (to harmonise with our European Counterparts supposedly)-the new measure contains less housing costs.
Given the rising cost of buying a home and of council tax rises the new measure is not a very good cost of living record anymore.
Given the rising cost of buying a home and of council tax rises the new measure is not a very good cost of living record anymore.
Here is what is actually in the basket.
www.statistics.gov.uk/articles/nojournal/CPIRPI_Basket2004.pdf
I note that fishing rods and acoustic guitars have been added to the calculation for 2004...
www.statistics.gov.uk/articles/nojournal/CPIRPI_Basket2004.pdf
I note that fishing rods and acoustic guitars have been added to the calculation for 2004...
Yep, this is the top of the slope as far as I can see.
Employers base their pay increases on the inflation rate, i.e 1.8% however prices are rising at the rate including housing so closer to 9%
This disparity will start to piss people off soon enough.
If labour lose that the election, which I cant see, but if they do they will have handed a poison chalice to the Tories and will then blame them for it. If they dont you will see a classic Labour tax themselves out of trouble policy commencing in about 2006/2007
Get your coats, it will be a discontented winter next year...
Employers base their pay increases on the inflation rate, i.e 1.8% however prices are rising at the rate including housing so closer to 9%
This disparity will start to piss people off soon enough.
If labour lose that the election, which I cant see, but if they do they will have handed a poison chalice to the Tories and will then blame them for it. If they dont you will see a classic Labour tax themselves out of trouble policy commencing in about 2006/2007
Get your coats, it will be a discontented winter next year...
Different people have different rates of inflation depending on the particular goods they like to buy.
It is indeed possible that a number of people have faced a very high inflation rate indeed in the last few years.
Council tax has risen rapidly
Petrol prices too, first due to the fuel tax rises, then to the rise in world oil prices.
Anyone educating thier children privately has faced large percentage rises on what must be an already high proportion of their expenditure.
The list goes on, but it would not surprise me if for a large number of people their pay is not keeping pace with the rise in their personal cost of living.
It is indeed possible that a number of people have faced a very high inflation rate indeed in the last few years.
Council tax has risen rapidly
Petrol prices too, first due to the fuel tax rises, then to the rise in world oil prices.
Anyone educating thier children privately has faced large percentage rises on what must be an already high proportion of their expenditure.
The list goes on, but it would not surprise me if for a large number of people their pay is not keeping pace with the rise in their personal cost of living.
Inflation has not taken house prices into account since the last house price crash, I believe. The previous experiences with the ERM and so on caused us to take on the EU model for calculating inflation.
Basically because the government of the day got blamed for it, the whole thing was frigged such that such that we wouldn't see interest rates diong the same as they did last time.
The problems of a fluctuating economy still exist, it's just less aparent these days. It's all been seen before, successive nudges in interest rates, by scared politicians. Eventually they'll realise, too late, that the only thing that actually works is big changes in interest rates that hurt.
The only question to answer is, are you living beyond your means? Listen carefully to the "labour no hopers" as they criticise the 16% Tory interest rates, and their incompetance with the economy. If they get in again, which I think they will, they'll have to eat those words.
I'm sure that someone with a financial background will be able to draw a better picture of the details, but I'm pretty sure the crux is right!
Basically because the government of the day got blamed for it, the whole thing was frigged such that such that we wouldn't see interest rates diong the same as they did last time.
The problems of a fluctuating economy still exist, it's just less aparent these days. It's all been seen before, successive nudges in interest rates, by scared politicians. Eventually they'll realise, too late, that the only thing that actually works is big changes in interest rates that hurt.
The only question to answer is, are you living beyond your means? Listen carefully to the "labour no hopers" as they criticise the 16% Tory interest rates, and their incompetance with the economy. If they get in again, which I think they will, they'll have to eat those words.
I'm sure that someone with a financial background will be able to draw a better picture of the details, but I'm pretty sure the crux is right!
relevant information from National Statistics Website
RPI includes Mortgage payments the new measure does not-RPI is currently 3.2%
.................................................
CPI inflation – the Government’s target measure – remained at 1.6 per cent in January. Deeper sales for some product groups were offset by a number of upward pressures.
Transport costs fell this year as prices for petrol and diesel fell in January contrasting with small rises recorded last year. In addition seasonal falls in air-fares were greater in January 2005 than a year earlier.
Another large downward effect came from furniture prices where January sales were deeper than last year following unseasonably high price rises in December 2004.
Stronger sales for clothing and footwear this January compared to last year, produced another large downward effect.
Large offsetting upward effects came from a number of commodity groups. Supply shortages for several seasonal food items led to higher prices this year than last January.
For the fourth successive month, rising household energy costs also had a large upward impact on the annual rate. Gas and electricity bills rose again in January mainly reflecting the ongoing impact of tariff increases from a number of major suppliers announced in the autumn.
Other large upward effects came from financial services and recreation and culture.
The RPI inflation rate fell to 3.2 per cent in January, from 3.5 per cent in December and was influenced by many similar factors although coverage, expenditure weights and some methodological differences resulted in an overall downward effect on the RPI annual rate. Inflation in most housing costs, which are excluded from the CPI, fell. This was mainly due to depreciation – the amount home owners need to spend to maintain their property – as house prices used in its calculation were broadly unchanged this year, but increased last year. The annual rate for the all-items RPI excluding mortgage interest payments (RPIX) was 2.1 per cent in January, down from 2.5 per cent in the previous month.
As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate has been among the lowest in the EU since the start of 2000. The provisional average inflation rate for the enlarged EU 25 in December, the latest available, was 2.2 per cent, compared with 1.6 per cent in the UK.
The next publication date will be 22 March 2005.
Notes:
CPI is the consumer prices index. It is the measure adopted by the Government for its UK inflation target. The Bank of England's Monetary Policy Committee is required to achieve a target of 2 per cent, subject to a margin of one percentage point on either side. Prior to 10 December 2003, the CPI was published in the UK as the harmonised index of consumer prices (HICP).
RPI is the retail prices index- the uses of RPI and its derivatives include indexation of pensions, state benefits and index-linked gilts.
Inflation is the percentage change in the index compared with the same month one year previously.
...................................................
>> Edited by JagLover on Wednesday 16th February 11:23
RPI includes Mortgage payments the new measure does not-RPI is currently 3.2%
.................................................
CPI inflation – the Government’s target measure – remained at 1.6 per cent in January. Deeper sales for some product groups were offset by a number of upward pressures.
Transport costs fell this year as prices for petrol and diesel fell in January contrasting with small rises recorded last year. In addition seasonal falls in air-fares were greater in January 2005 than a year earlier.
Another large downward effect came from furniture prices where January sales were deeper than last year following unseasonably high price rises in December 2004.
Stronger sales for clothing and footwear this January compared to last year, produced another large downward effect.
Large offsetting upward effects came from a number of commodity groups. Supply shortages for several seasonal food items led to higher prices this year than last January.
For the fourth successive month, rising household energy costs also had a large upward impact on the annual rate. Gas and electricity bills rose again in January mainly reflecting the ongoing impact of tariff increases from a number of major suppliers announced in the autumn.
Other large upward effects came from financial services and recreation and culture.
The RPI inflation rate fell to 3.2 per cent in January, from 3.5 per cent in December and was influenced by many similar factors although coverage, expenditure weights and some methodological differences resulted in an overall downward effect on the RPI annual rate. Inflation in most housing costs, which are excluded from the CPI, fell. This was mainly due to depreciation – the amount home owners need to spend to maintain their property – as house prices used in its calculation were broadly unchanged this year, but increased last year. The annual rate for the all-items RPI excluding mortgage interest payments (RPIX) was 2.1 per cent in January, down from 2.5 per cent in the previous month.
As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate has been among the lowest in the EU since the start of 2000. The provisional average inflation rate for the enlarged EU 25 in December, the latest available, was 2.2 per cent, compared with 1.6 per cent in the UK.
The next publication date will be 22 March 2005.
Notes:
CPI is the consumer prices index. It is the measure adopted by the Government for its UK inflation target. The Bank of England's Monetary Policy Committee is required to achieve a target of 2 per cent, subject to a margin of one percentage point on either side. Prior to 10 December 2003, the CPI was published in the UK as the harmonised index of consumer prices (HICP).
RPI is the retail prices index- the uses of RPI and its derivatives include indexation of pensions, state benefits and index-linked gilts.
Inflation is the percentage change in the index compared with the same month one year previously.
...................................................
>> Edited by JagLover on Wednesday 16th February 11:23
JagLover said:
Council tax has risen rapidly
Petrol prices too, first due to the fuel tax rises, then to the rise in world oil prices.
Anyone educating thier children privately has faced large percentage rises on what must be an already high proportion of their expenditure.
but this is Labour. their definition doesn't include anything they had a hand in.
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