Why is growth less than inflation?
Discussion
I'm a simpleton when it comes to economics, but I don't understand the relationship between growth and inflation. If GDP is a measure of the monetary value of goods and services and these have increased by 10% ( I personally think it is much higher), shouldn't GDP be up by at least 10% ?
(Slight simplification) GDP calculations strip out the effects of inflation. So if inflation is 10%, and nominal GDP growth was 13%, then real growth was 3%.
This means that small differences in how you define inflation can have a big impact on reported growth rates, which leads to disputes between political parties, or in some cases between the World Bank and its clients.
This means that small differences in how you define inflation can have a big impact on reported growth rates, which leads to disputes between political parties, or in some cases between the World Bank and its clients.
lornemalvo said:
I don't understand the relationship between growth and inflation.
Nor does the Bank of England but they don't let that stand in the way of ramping up interest rates.Banks charge you more for your loans - your cost of living goes up - the cost of everything you buy goes up - you demand highr wages (if lucky) = Hello inflation.
Has anything "grown"? No.
Are the higher costs of borrowing likely to further slow economic growth? Yes.
Is UK in a strong competitive position on the world stage? No.
The inflation measures feel fairly broken to me anyway, but I've not looked into thing in detail so happy to be corrected.
My experience is that inflation on a practical level is far higher than the reported values, the things I buy have not increased by 10% over the last year, it must be somewhere between 20% and 30% on average.
My view is the underlying issue there is that the weighted basket of goods definition is not sufficiently dynamic and doesn't take into account that pushing up prices a lot on essentials has a big effect on the weightings that should be applied. What I mean is, if you include food, energy and TVs in your basket and the price of food and energy doubles then the fact that TVs have fallen in price is irrelevant because people stopped buying them because they'd rather be warm and not hungry.
I'm not sure food price inflation is measured accurately either. I would put my weekly shop around 40% more expensive, but the figure is nowhere near that. I can compare items line by line and see that I'm more right than the 'experts'. What seems to be missing is that half the stuff I buy would be on discount any given week, now there are very few offers each week and on top of that I can no longer get the cheaper options on many products at all, so while my Tomato Puree has increased from 45p to 67p, which is 45% inflation, I was actually buying the 19p tube which has vanished, so the true inflation is nearly 353%
My experience is that inflation on a practical level is far higher than the reported values, the things I buy have not increased by 10% over the last year, it must be somewhere between 20% and 30% on average.
My view is the underlying issue there is that the weighted basket of goods definition is not sufficiently dynamic and doesn't take into account that pushing up prices a lot on essentials has a big effect on the weightings that should be applied. What I mean is, if you include food, energy and TVs in your basket and the price of food and energy doubles then the fact that TVs have fallen in price is irrelevant because people stopped buying them because they'd rather be warm and not hungry.
I'm not sure food price inflation is measured accurately either. I would put my weekly shop around 40% more expensive, but the figure is nowhere near that. I can compare items line by line and see that I'm more right than the 'experts'. What seems to be missing is that half the stuff I buy would be on discount any given week, now there are very few offers each week and on top of that I can no longer get the cheaper options on many products at all, so while my Tomato Puree has increased from 45p to 67p, which is 45% inflation, I was actually buying the 19p tube which has vanished, so the true inflation is nearly 353%
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