The Great Inflation Review | Morning Star

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Inflation data is usually left to economists, but this week how we measure the cost of living has been in the spotlight after a campaign by food writer Jack Monroe.

In the UK, our main source of inflation data is the Office for National Statistics (ONS). According to the ONS, the Consumer Price Index (CPI) rose 5.4% in December, the highest level since March 1992. Everyone expects prices to rise over time, from houses to beer to stamps. of first

In theory, wages also rise, although the decoupling of wages and prices is the subject of much academic debate. The state pension (and some other occupational pension plans) are also tied to changes in inflation, so the data is very important. The Bank of England keeps a close eye on the inflation figure, and that has a ripple effect on the mortgages, personal loans and credit cards used by the average Briton.

What’s in your basket?

The CPI is really just a theoretical dynamic basket of goods that the average buyer buys (more of which later), and is “weighted” based on their importance. The “basket” itself consists of 700 products at around 180,000 price points and includes food, gasoline, clothing and other items. Changes are tracked monthly and annually.

The ONS basket is shuffled periodically to reflect buying trends. Smart watches and hand gel were added in 2021, for example. You can see that the price of tomatoes is now at a record 241 pence per kilo, up from around 37 pence per kilo in 1972, when the data set began. But the price of bananas peaked in 1990 and has been going downhill ever since. Most of these are imported, so other factors come into play, often beyond the control of British buyers, such as production, harvests, weather, political instability and exchange rates.

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The 5% CPI increase, therefore, means that the average item measured by the ONS is 5% higher than at the same point last year. There are other measures of inflation; The ONS’s preferred measure is the CPIH, which includes housing costs for owner occupants. Meanwhile, the Retail Price Index (RPI), generally higher than the CPI, is used by rail companies to set annual rail rates.

But there’s a problem. How can a monthly issue, published two weeks after the month ends, capture the complex economic reality of Britain’s different social groups?

Some people have saved a lot during the lockdowns, while others have been on furlough and in dire financial straits. Everyone has to eat and most people travel for work (using a car or train), but beyond that, everyone’s financial profile is different. Ultimately, the ONS data is a “snapshot” in time and does not take into account the wealth or income of the person who spends. Jack Monroe wants to change that.

She argues that for some staples like rice, pasta and bouillon cubes, prices have ballooned far beyond official measures, hitting the poorest members of society the hardest.

After launching their campaign, the ONS agreed to publish an alternative measure of inflation, called the Vimes Boot Index after a Terry Pratchett character. She says the goal is to release the figures at the time of the next official CPI data in February. Monroe is approaching the inflation debate from a food standpoint, but there are real concerns about fuel shortages this year ahead of Ofgem’s price cap lifting in April as well.

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earnings data

The ONS itself is restarting a series of “experimental statistics” on inflation data at different income levels, a series that was launched before the pandemic but was later cut short as statisticians had to adapt to working from home and concentrating on producing the daily Covid. Statistics. The series will relaunch on Friday, January 28, and will be separate from the index Monroe has been campaigning for, which will be released alongside the official figures.

“We will continue to produce our headline inflation statistics, which are long-lived and follow international best practice,” the ONS said.

But he also insisted that the inflation data is also being worked on to improve its accuracy. One idea is to scale the data points from 180,000 to hundreds of millions.

“We are continuing with longer-term plans to improve our inflation figures by including data from supermarket checkouts, which will help us understand people’s inflation experience in a much more detailed way,” the ONS said.

So in the age of big data, when statisticians use increasingly sophisticated models and data sets to produce a monthly number with the power to shock and dismay anti-poverty activists, this topic has a long way to go. .

After the financial crisis, the media was transfixed by the GDP figures. Now inflation is having its moment of glory again and it seems unlikely that the debate itself will be transitory.

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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