Inflation is rising fast, but the Government and the supermarkets would have us believe that prices are not soaring above earnings. Experts tell us we are mistaken when we think our weekly shop is more expensive.
Today we are told that prices in the newly configured inflation basket have increased by 2.3% year on year. That is according to the official consumer price index invented a few years ago and according to the new CPIH index that includes the economists’ take on the cost of owning a home unveiled today was also exactly the same as the CPI, which does not include the cost of owning a home. Now how did that happen?
New index will understate real rate of inflation
And why are the costs of owning a home calculated using a fictional cost of renting your own home? It is a bit like Business Rates and we all know how well that maths went. It luckily coincides with one survey suggesting that rents are falling in the UK.
Much more seriously while gin and smart phones may now be part of the CPI basket the true measure of the cost of living devised a century ago in the First World War, the retail prices index, is hidden from view. It is running at 3.2% – far ahead of wage rises.
RPI is ignored by Government unless we are paying
More serious is the way RPI is used by Government agencies to fuel inflation. The Chancellor increased alcohol prices in the Budget in line with the RPI. Rail fares are increased using RPI in the formula. Council tax increases are in line with RPI. Student loan interest is RPI. Mobile phone contracts use RPI.
Work pensions are increasingly being uprated in line with CPI as are other payments made by the government to us, if they are not actually frozen. CPI ignores mortgage payments, council tax, buildings insurance and estate agents’ costs.
So we should all feel ok when the inflation figures are published every month until we get to the check out or get our gas or electricity bill that is.