Inflation reporting confusion

[rotaryjam]

So I have a question about inflation.

The news is filled with reports about "inflation hitting x"

Today it says 11% as an example. I find this reporting incredibly vague and perhaps misleading?

- when is it going to hit 11%?

- what time period does that 11% cover?

- is the inflation figure reported at regular time periods e.g. quarterly or just whenever a news paper feels like it?

My thinking being that the headline tells me nothing.. it could be that actually inflation growth is decreasing and we are now over the worst e.g. inflation rose by 10% over 6 months but 1% over the remaining 6.

Can anyone explain what it means and if it is confusing?

[Stuart70]

https://www.ons.gov.uk/economy/inflationandpricein...

[rotaryjam]

Stuart70 said:

https://www.ons.gov.uk/economy/inflationandpricein...

Thanks that's handy

So that's showing historic inflation, that is fairly straightforward.

It's when the papers say 'Inflation to hit 11%" what is that actually saying?

Looking at that date, inflation for the last few quarters

2021 Q1 - 0.9
2021 Q2 - 2.1 (+1.2)
2021 Q3 - 2.7 (+0.6)
2021 Q4 - 4.4 (+1.7)
2022 Q1 - 5.5 (+1.1)

So what I really want to know is, what is the predicted Q2 inflation and does that represent increasing or decreasing inflation growth??

To make matters worse, I understand that inflation measurement has changed over the years so when we see comparisons with the 70s and 80s the methodologies have changed, so effectively the current inflation figures appear much lower than they really should for comparison

I find it almost impossible to get a realistic view of how inflation is changing and how that compares historically

Edited by rotaryjam on Friday 17th June 08:43

[Simpo Two]

rotaryjam said:

So I have a question about inflation.

The news is filled with reports about "inflation hitting x"

Today it says 11% as an example. I find this reporting incredibly vague and perhaps misleading?

- when is it going to hit 11%?

- what time period does that 11% cover?

That's like saying 'When will my investments peak so I know when to sell?' Nobody knows, it's all guesswork.

All we do know, being pragmatic, is 'stuff is going to get more expensive'.

[Jon39]

rotaryjam said:

So I have a question about inflation.

The news is filled with reports about "inflation hitting x"

Today it says 11% as an example. I find this reporting incredibly vague and perhaps misleading?

- when is it going to hit 11%?

- what time period does that 11% cover?

- is the inflation figure reported at regular time periods e.g. quarterly or just whenever a news paper feels like it?

My thinking being that the headline tells me nothing.. it could be that actually inflation growth is decreasing and we are now over the worst e.g. inflation rose by 10% over 6 months but 1% over the remaining 6.

Can anyone explain what it means and if it is confusing?

I will just add a few thoughts in case it helps.

- UK used to always use Retail Price Index (RPI).
Recently the government prefer Consumer Price Index (funny that because it produces lower figures). They say it is more accurate. I don't think it includes housing costs and most of us live in a home.

- Never precise measurements, because the indices measure a selection of goods/services. All of our buying will be different.
The figures published are of course an average. We particularly see that now, where energy prices have risen far more than the RPI figures.

- Published figures tend to cover the whole of the past 12 months.
If energy costs were to remain constant at the current high level for some time (very unlikely), after 12 months that element of the calculation would count as zero inflation.

- The only way I have found of estimating the immediate future direction of the published RPI, is to look back 6 months (instead of 12), then multiply by two to obtain an annualised figure of the past 6 months situation.
On very rare occasions, that technique has indicated a sharp fall. A good moment to buy long dated gilts.

I don't know your age, so will not frighten you with the inflation rate during the 1970s. At that time, those in secure employment found the capital part of their mortgages being paid off by inflation. For those who lost their jobs - disaster.

The Inflation figures are published monthly.
RPI records go back at least 70 years.


The data below shows May 6 month annualised at 14.5% and the government published 12 month RPI at 11.1%.
That indicates the June RPI will almost certainly be higher than May.
The May 2021 monthly figure (0·3%) will drop out of the calculation.

We can see from the table, that the indication of rising inflation became apparent in Spring 2021.
The 6 month numbers began to be higher than the 12 month percentages.






Hope that might help.

Edited by Jon39 on Friday 17th June 11:01

[LeoSayer]

Inflation is the annual change in CPI. CPI is calculated monthly by the ONS. The latest calculation was to April 2022 and can be found here:

https://www.ons.gov.uk/economy/inflationandpricein...

So when the Bank of England says they expect inflation to hit 11% in the autumn, they are estimating that prices in autumn 2022 will be 11% higher than they were in autumn 2021. Much of those prices rises will have already taken effect but further are expected with the energy price cap review in October.