The Office for National Statistics has just announced new inflation data:
The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 9.2% in the 12 months to December 2022 – down from 9.3% in November.
The Consumer Prices Index (CPI) rose by 10.5%, down from 10.7% in November.
➡️ https://t.co/y0NYgn847k pic.twitter.com/UrOgtSIzTo
— Office for National Statistics (ONS) (@ONS) January 18, 2023
As expected, the rate is down. But, as also expected, the rate is not down much. The inflation indices are still making price comparisons with pre war in Ukraine price data. Once the comparison begins to be with data from the war era (March onwards) inflation will tumble.
This is why trade unions are right to pursue their pay claims now. As soon as inflation tumbles the suggestion will be made that there is no need for inflationary pay rises. That, of course, will be nonsense. Falling inflation does not reduce absolute price levels. Only deflation does that. So, pay rises to compensate for inflation are still required. Best get them resolved now. The media and politicians will berate who try for them later, whatever the facts of the matter.
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‘Heard on R4 this morning the debate about which price inflation index to use when working out wage to price ratios (RPI or CPI) I think with the former producing higher wage claims.
To me it’s a bit pathetic arguing over the indices when you’ve got food bank usage at an all time high and low retention rates in key services.
This is all about austerity chickens coming home to roost.
And how’s this for a story.
Last night I dropped off some cheques for the mini rugby festival I run every year to our treasurer. He happens to live on a new housing development.
I kid you not that last night, through a window of one of these new houses I stood and saw a family of 4 persons sitting in the living room of their new house, watching their rather large TV and eating their meal huddled up on the sofa with their coats on.
With their coats on!
New house? Interests rates? CoLC?
All I could think of was ‘What a country’.
I read recently that if UK house prices had increased only at the rate of measured inflation for the last 70 years then today’s average house price would be just over £63,000.
I am also aware that whenever the UK government is faced with people who can fight back, such as UK index-linked bond buyers, or the House building lobby, it is forced to use more generous definitions of inflation than the CPI measurement it insists on using in public matters.
What do you or any of your contributors think would be a more accurate way of calculating inflation?
Personally, I do not think that any inflation measure can be accurate if it does not address the hugely inflationary, constantly rising costs of all assets.
But is that a direct cost of living and is the revenue / asset price inflation relevant? It may be, but there is a feedback loop between the two, very clearly
“What is inflation?” – A good question….. and I could bore for Britain on some of the differences between RPI and CPI plus myriad other technicalities. However, it would miss the point.
WHATEVER definition is used, the pay offer from the Government to workers is substantially below it.
And I agree with Richard, the Unions must fight on this issue NOW… otherwise as inflation falls (as it surely will) they will find themselves locked into a permanent real wage reduction (along the lines of the last decade).
Any inflation measure is only a broad indication, unless it is absolutely specific. For example petrol price inflation from April 2021 to March 2022 can be reasonable accurate, although with price variation between different suppliers, it cannot be accurate.
If you want to use an inflation figure to decide how much basic state benefits should rise, you should use a specific index. Someone on basic benefits with maximum housing and council tax support will spend about 90% of their income on energy and basic foodstuffs. An inflation figure that includes other items is meaningless.
So any figure should depend on the purpose it is to be used for. Sadly that does not happen so, unsurprisingly, those on the lowest incomes lose out again.
Petrol Price inflation is an interesting one.
The price of the stuff that comes out of the ground is significantly impacted by the Cartel manipulations of OPEC.
The wholesale cost of the refined product in the UK is totally dominated by 4 or 5 suppliers.
Sales to Consumers are overwhelmingly controlled by 4 or 5 supermarkets.
The old monopolies Commission used to describe any market where 60% of sales are controlled by 5 or less companies as a monopoly.
Nowhere in the petrol market is there any competition on price.
Like gas, petrol prices are dominated by Power politics, extreme ideologies and planet destroying greed.
Apologies if I sound a bit harsh.
This web site shows a typical house price from 1952 of £1,911 see https://www.officialdata.org/uk/inflation/1952?amount=1911
It also suggests that is equivalent to £56,000 today.
Another site shows that shows the value of the pound over the last 70 years due to inflation only, suggests it is equivalent to £70,349, see https://www.officialdata.org/uk/inflation/1952?amount=1911
But the average house price today is actually £260,000, some 3½ – 4½ times as much. Some of this must be due to the building of bigger houses (than your typical terrace), but the other reason must be the shortage of housing. Some sources suggest we need 2.7 million homes, of which 750,000 should be social housing. https://www.showhouse.co.uk/news/uk-needs-to-build-340000-new-homes-a-year-until-2031/
Not surprising that the Telegraph in June was claiming that there was no housing shortage… who claim the problem is high house prices due to the then low interest rates. https://www.telegraph.co.uk/news/2022/06/30/no-housing-shortage-britain/
Tell that to the nurses.
Some of this must be due to the building of bigger houses (than your typical terrace)
You must be joking. Have you seen the shoeboxes they call houses these days?
There are both
Houses were more intensively used 70 years ago eg: one small bathroom and more people per bedroom. The only people I knew who had bedrooms to themselves when I was a child were only children (a bit of a rarity in the 50s). So I think part of the housing shortage is partly to do with higher expectations of personal space though that is, of course, only one of the several contributary factors.