[Closed] Where can I get accurate and true Cost of Inflation figures?

Really? Where did you get that info? I would have thought the Office for National Stats is by far the most accurate and accepted figure

ask this trustworthy fella...

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So where can I find the real figures?

In order to produce the inflation figures you have to have a methodology; the ONS is questioning whether its methodology is the best. But any change to the methodology is just a shift from one interpretative method to another - it's not a case of one is right and one is wrong.

"The CPI calculates the average price increase as a percentage for a basket of 600 different goods and services. Around the middle of each month it collects information on prices of these commodities from 120,000 different retailing outlets." http://en.wikipedia.org/wiki/Consumer_Price_Index_(United_Kingdom)

ONS figures aren't meant to represent your weekly shopping bill anyway, as they deliberately include big ticket items (cars, electronics etc) as well as housing and utilities. These items could have a positive or negative effect on the figure.

if you want to see what your own personal inflation is, write down everything you bought last year in a spreadsheet, and everything you bought this year, remove the items that weren't a direct correlation and there ya go

So if you're wanting to assess if you're not "going backwards" financially or wanting to negotiate a pay review for example - should the Rate/Cost of Inflation have a bearing on it? If is does, do you just accept the ONS figures?

Well when Blair came to power he made the BOE independant, then he gave them an inflation target base on government inflation figures (thus removing independance). As the figures didn't include house prices the BOE fixed interest rates too low throughout the Blair-Brown years and we all know what that led to.

How long is that piece of string again?

On one hand, yes and yes.

On the other hand, wages in negotiations are (often) going to be set by the market for workers of that type. In that case, it could be too bad if inflation is 10% because there are plenty of other widget-makers who would do your job for 20% less than your current wages - so I (employer) am going to cut your wages 20% and if you don't like it, serve your notice and leave. (And the other way around too, of course).

On the third hand (!), it depends whether you're negotiating for a lot of people or just yourself. Your personal spending patterns might have nothing to do whatsoever with the CPI - if you spend all your money on titanium bike bits and porridge and the prices of those two things go up 50%, then the value of your wages as far as you're concerned has just radically declined. But if you're looking at e.g. 100,000 civil servants as a whole, then freaks' spending habits will probably be balanced out by other freaks' spending habits to look like the hypothetical "basket" the ONS uses.

Well when Blair came to power he made the BOE independant, then he gave them an inflation target base on government inflation figures (thus removing independance). As the figures didn't include house prices the BOE fixed interest rates too low throughout the Blair-Brown years and we all know what that led to.

it didn't include house prices, but it did include housing costs, which was a balance of average rent and the average mortgauge payment. Its a bit of a feedback loop (as lower boe rates leads to lower interest rates which leads to lower mortgauge payments leads to less inflation) but it is included.

The housing costs part of the governments shopping basket was set far to low, so low it had hardly any influence on the figure when in fact haousing is [b]the[/b] major expense in most households. As far as I'm concerned the weightings were fudged to produce misleadingly low inflation numbers.

....the weightings were fudged to produce misleadingly low inflation numbers

[i]Whichever[/i] method used, inflation was historically low throughout New Labour's time in government. Although I appreciate that fact won't satisfy those with an inflation fetish.

The best proof that you look at the world through labour-rose-tinted and smoked spectacles, Ernie. What did the average house price increase by over the period Labour were in power? Go on, Google it. Now add all the stealth taxes that didn't get included in the inflation numbers either.

The best proof that you look at the world through labour-rose-tinted and smoked spectacles, Ernie.

I look at the fact that throughout New Labour's time in office inflation rates were historically low. Playing around with different ways of calculating inflation will not change that fact - the differences are too insignificant.

I am neither a New Labour supporter, nor do I have an inflation fetish.

im not sure that for the average household housing costs are that high. There are probably as many un-mortgauged houses in the country as there are with a mortgauge, in addition to which a huge proportion of people rent (and rents rose very little over the last 10 years). add into that the fact that a lot of folk have a small mortgauge on their property (i think the average mortgauge is around 50k, or 1/3 of the average house price) and rising prices has a small impact on the average person in the UK.

I was a ftb 4 years ago, so for me its a large proportion of my take home pay, but my brother and sister both rent, my parents (in their 60s), their siblings, their parents and nearly everyone else in my extented family own outright. if you look at our average household expendature overall, housing costs are tiny

So do I require an annual pay-rise to keep up with Inflation?

If I don't have a pay-rise for 3 years would I be getting poorer and would my Standard of Living have dropped?

Well of course you need an annual pay-rise to keep up with inflation, we have "inflation". If you don't, your standard of living/purchasing power will decrease.

On the other hand you might be happy to tighten your belt and accept a reduced standard of living to deal with the present economic situation. We're all in this together.

Thanks Ernie but I'm just trying to ascertain the correct figure in percentage terms for "inflation".

I don't think it works like that tyger. You try to get the maximum possible pay rise out of your employer, and your employer tries to pay the minimum possible pay rise they can get away with. Inflation rates don't really come into it.

So if, for example, someone doesn't get a pay rise for three years are you, in effect, actually getting a pay cut?

The relevant column is the last one. So if your wage was set in Jan 2008 and didn't change, it lost 3.6132% of its value over the year. Then it lost another 2.1662% between Jan and Dec 2009. And then it lost another 3.2860% between Jan and Dec 2010.

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec [b]Annual[/b]
2011 4.0036% 4.3401% 4.0529% 4.4658% 4.4580% 4.1885% 4.4619%
2010 3.4039% 3.0109% 3.3698% 3.7239% 3.3424% 3.2432% 3.0658% 3.1418% 3.0493% 3.1334% 3.2143% 3.7300% [b]3.2860%[/b]
2009 3.0332% 3.1044% 2.9053% 2.3234% 2.2161% 1.8349% 1.7431% 1.5497% 1.0879% 1.5455% 1.9108% 2.8311% [b]2.1662%[/b]
2008 2.2287% 2.5072% 2.3992% 2.9665% 3.3397% 3.8095% 4.4061% 4.7755% 5.2481% 4.4634% 4.0720% 3.1073% [b]3.6132%[/b]

Source: http://www.rateinflation.com/inflation-rate/uk-historical-inflation-rate.php?form=ukir (don't think the same data set will remain)

Edit: bugger - table too wide. Might be easier to C&P that into a doc or something.

This page may also be helpful: http://www.guardian.co.uk/news/datablog/2009/mar/09/inflation-economics

Now add all the stealth taxes that didn't get included in the inflation numbers either

House price inflation had a disproportionate inpact on borrowing though. House price inflation thus fueled an economic bubble. More attention should have been paid to house prices when assertaining inflation and setting interest rates.

Increasing house prices allowed people to borrow against equity (second mortgages and mortgage extensions) fueling a artificial boom in which the unrealistically low cost of borrowing wasa major factor. Far from the importanceo of house prices being minor it was disproprtionately significant in adding fuel to a straw fire.

Any stealth tax concerning goods or services not in [url= http://www.ons.gov.uk/ons/rel/cpi/cpi-rpi-basket/2011/index.html ]the government's shopping basket[/url]. For example: increasing national insurance contributions by 10%.

i'm not debating whether house prices had an impact on the economic cycles (although with house prices higher, a larger proportion of peoples income goes on the mortgauge, which generally would cut inflation) - I'm just saying the hpi, on its own, doesn't have a huge impact on the 'basket of goods' inflation figures

[i]although with house prices higher, a larger proportion of peoples income goes on the mortgauge, which generally would cut inflation[/i]

Nope, the proportion of people's income that goes on the mortgage depends more in interest rates. The amount they can borrow is unaffected by house prices. The amount people can borrow depends on what the bank is prepared to lend them, they will buy a house they can afford within the budget defined by the bank. The monthly cost of that money then depends on interest rates.

However, higher house prices mean people can borrow more against equity thus allowing them to consume more and create inflationary pressures. The worst possible inflationary combination is high house prices and low interest rates. Exactly what Labour encouraged.

It's classic monetarism, management of the economy through interest rates, and Blair and Co ran low interest rates resulting in high inflation, inflation that was seen in House prices rather than televisions or computers.

the amount of money people can borrow is dependant on house prices, as the two go hand in hand. If banks lend more, prices go up, but if prices go down, banks will contract lending (typically through raising minimum deposits, or severely hiking rates on high ltv loans) reducing the effect.

you seem to be suggesting that house prices individually should be accounted for when setting the interest rate - this could happen (and the boe actually have remit to do so if they desire, the target is just that, and has been broadly ignored in the past 2-3 years) but you'd then have a scenario where if inflation was high, but house prices were dropping (as happened during the 80s), the boe rates should stay artificially low to take into account the opposing forces.

there would be other ways of controlling hpi - for instance a tax on the profit made on a house above a certian level (like capital gains tax, but only on profit above, say, 3%pa). You could even get some kind of tax rebate (maybe vs the stamp duty) if the house price performance was below that level. Not sure how that might take into account home improvements, but there ya go

[i]the amount of money people can borrow is dependant on house prices, as the two go hand in hand[/i]

Utter rubbish, I can't be bothered to read the rest. Just because a house increases in price from £150 000 to £200 000 it most definitely does not mean that it will increase the potential buyer's ability to borrow. If you can't see that I'm wasting my time here and will leave you to posting stuff safe in the knowledge that the vast majority of STW posters can.

If you can't see that I'm wasting my time here and will leave you to posting stuff safe in the knowledge that the vast majority of STW posters can.

Yes, I will agree that you're wasting your time here, specially when you're posting bollox claiming there was, quote : "high inflation" under Blair/Brown.

If you look at inflation rate history data for the UK, you will see that inflation was comparatively low under Blair/Brown......whichever method of calculation is used. Of course it wasn't all down to their economic policies - Chinese consumer goods deflation had a fair amount to do with it, but that's another story.

A who was it that got inflation down? Yup, Thatcher, monetarism works.

Once again, Ernie, you've missed my point and started comparing inflation under different governments which I was not: my point was: real inflation was higher than claimed by the government under Blair/Brown because the shopping basket did not incude the price of the commodity that represents the most consumer-held wealth in the UK: housing.

A who was it that got inflation down? Yup, Thatcher, monetarism works.

Well make your mind up mate.......I thought you said that we had high levels of inflation ?

So what is it then.......have we got high or low inflation ? And was it higher or lower under the Tories than under New Labour ?

And I don't know why you appear to think that I should be particularly impressed with low inflation, I've already told you that I don't have an inflation fetish.

Unlike thatcher who thought that inflation was the root of all economic evil, and that unemployment was "a price worth paying for low inflation", I think unemployment is the root of all economic evil, and that inflation is a price worth paying for low unemployment. And like most people, I recognise that deflation is a far greater evil than inflation.

And btw it wasn't just Chinese consumer goods deflation which significantly helped New Labour keep low levels of inflation, flooding the market with cheap Eastern European labour desperate for work, also among others things, undoubtedly helped. I can't see how thatcher can take credit for either of those things.

BTW Edukator, I thought you had flounced.....what was all this about then ?

Utter rubbish, I can't be bothered to read the rest........... I'm wasting my time here and will leave you to posting stuff safe in the knowledge that the vast majority of STW posters can.

Any stealth tax concerning goods or services not in the government's shopping basket. For example: increasing national insurance contributions by 10%.

Tyger, generally speaking - if you deserved a pay rise you'd get one. If you haven't had one for three years maybe you don't deserve one . . .

just a thought.

Whether someone deserves a pay rise, whether the market price for that person's labour has gone up and what the rate of inflation is can all have a pretty weak relationship with whether someone actually gets a pay rise and how much that pay rise is.

I'm ignoring 5lab, Ernie. That's not flounce, it's ignoring someone that persists in posting factually inaccuarte material.

Inflation in National Insurance contributions is inflation, it's also a steatlh tax increase, it's not included in CPI, that's exactly what I said orignally that was contested, Konabunny. Thank you for confirming I'm right.

Any stealth tax concerning goods or services not in the government's shopping basket. For example: increasing national insurance contributions by 10%

NI doesn't concern goods or services.

A decrease in your net income or increase in income tax doesn't affect inflation. It's hardly a criticism of the CPI that it doesn't try to capture their effects.

It funds the health service amongst other things.

Edukator

Inflation in National Insurance contributions is inflation,

it's also a stealth tax increase

No its not as everyone knew about it. Its just a tax increase. Its not hidden in any way

it's not included in CPI,

tax increases may create inflationary pressures ( but not always) But honestly - amongst all the

edukator: you're making no sense whatsoever.

I understand perfectly what inflation is TJ, you clearly don't. An increase in a tax is inflation as much as an increase in anything else. When tax on booze increases it's included in CPI, when tax to pay the health service increases it's not included by the government because they choose not to, but it is most certainly inflation.

On your definition there is no such thing a a slealth tax as all taxes are published by the government. "Stealth taxing" refers to a way in which goverments avoid increasing headline grabbing taxes such as inclome tax (perhaps because they've made electoral promises nto to do so) but increase another tax which has the same impact, in this case NI contributions.

I'm making perfect sense but you don't like what I'm saying, Konabunny. You always acuse you're adversaries of not making sense when your own arguments fall apart.

Actually, increasing NI is far worse than increasing income tax if you want a fair, progressive tax system. It only taxes earned incomes, meaning those that are rich enough not to work and live on investment incomes don't pay it. A tax on the poor then.

Good points Edukator!

what have I posted that's factually incorrect? That housing costs don't contribute a large portion of the average households 'basket of goods' as a result of which they're not included in CPI?

Or that as house prices rise, banks are encouraged to take more risks with lending (as prices are rising, it means if someone defaults after a few years, they're likely to get all their money back), which raises lending levels, thus fueling more house price rises? And as house prices drop, the opposite happens, fuelling more house price drops?

if I've said something that is factually incorrect, please enlighten me. Everyday's a school day and all that

Increasing NI is actually a way of curbing inflation, as it's traditionally measured, as folks have less money to spend on goods, which will in turn encourage prices to rise more slowly

That second paragraph is not what you origianlly said.

Look back at the two posts where I've quoted 5lab on the previous page to see where I picked him up on factual inaccuracies STWers.

As for this:

[i]Increasing NI is actually a way of curbing inflation, as it's traditionally measured, as folks have less money to spend on goods, which will in turn encourage prices to rise more slowly [/i]

Since when did forcing people to spend more on health reduce inflation? If NI were a withdrawal from the circualr flow of income it would be deflationary, but it's not, it's immediately spent (squandered) on a service the cost of which is spiraling upwards. The increasing cost of health care is inflation, the increased NI rate is how that inflation is passed on to the public.

NI pays for lots of other services too, services for which the cost is also rising: inflation.

For the OP, another way governments fudge the headline inflation figure is not adapting the basket to consumer trends. Following the price of a particular type of television is misleading if nobody buys that size or technology anymore. The same goes for any rapidly evolving consumer durable. Governments are also slow to include new products and services into the basket so the basket fails to represent percieved inflation in goods and services for which demand is high. On the other hand they are very quick to integrate price decreases in goods and services which are falling from favour into the headline figures even though they no longer concern as many people or such a high proportion of household expenditure.

An increase in a tax is inflation as much as an increase in anything else.