[Closed] Why is Inflation only 3.5%?

because the basket of goods on which the inflation calculation is based, has only risen by 3.5%. You have to think what things cost 12 months ago, which isn't always as easy as it seems. Goods go up and down in price over shorter timescales.

there's a lot of stuff that isn't rising in price. You can look at the ONS for a full breakdown, but off the top of my head :

cost of a car (or a month's lease of one) hasn't risen significantly in 10 years (its risen, but not by much)

TVs are getting cheaper by the year

Cost of a mobile phone, with a reasonable number of minutes\texts has never been cheaper

Primark, asda et al make clothing *very* cheap (£2 t-shirts etc)

So - to answer the question - for every item that's gone up 10%, there's two that haven't risen at all. Also worth remembering that a lot of prices were dipping around a year ago, so if they were at their lowest in June, you won't see the full impact of that inflation till next June (ie if crisps were 30p last jan, then 15p in june, if they doubled in price to 30p now, we'd see 0% inflation) - this happened with fuel.

or, depending on the style of your tin foil hat, the government are lying to steal money from us

here's the full table :

STATISTICS.GOV.UK "http://www.statistics.gov.uk/downloads/theme_economy/a-to-i-nov-2010.pdf"

Goods go up and down in price

What goes down in price? - everything goes up as far as I can tell!

Your personal rate of inflation may well be different to the headline rate if you do not purchase all of the goods in the ONS' basket in the proportions that they do.

doesn't seem to make sense to me - anybody understand what's going on?

Yup, inflation is caused by wages going up. It has nothing to do with prices going up because private companies want to to increase their profits.

TBH I'm surprised you didn't know that. It's what every Thatcherite neo-liberal government has been telling us for the last 30 years.

teef - Member
Goods go up and down in price
What goes down in price? - everything goes up as far as I can tell!

Technology goods.

4 egg custards at greggs have gone up 30% from 1 pound to 1.30 for those who don't retch at the thought of an egg custard.

Your personal rate of inflation may well be different to the headline rate if you do not purchase all of the goods in the ONS' basket in the proportions that they do.

Aye. You're ok if you buy a new tv every month, less so if you need to run a car you already own and can't exist on a diet of cable television.

What goes down in price? - everything goes up as far as I can tell!

from my link, footware, water, gas, financial services, other personal goods, games, sports kit, camera kit, second hand cars and sea travel have all dropped in price in the last 12 months

Comodoties up, services down as people compete for limited demand, means that there is more balance than your analysis suggests I'd imagine. Also CPI includes housing costs which are not moving much and RPI will probably be way higher for december to reflect fuel and food rises

When base rates move up, which they will at some point in the future that is going to impact a lot of people on base rate trackers and could really put a spike in the CPI!

Aye. You're ok if you buy a new tv every month, less so if you need to run a car you already own and can't exist on a diet of cable television.

TVs and radios (Reception and reproduction of sound and pictures) get a weighting of 7 in the CPI statistics - ie they think it makes up 0.7% of your annual spending. They recon you spend the approx same amount on

pets
Hairdressing
plumbers/other house repair people

in a nutshell as I understand it:
2 main rates of inflation
CPI: Government measure of what they'd like it to be, not based on anything
RPI: what stuff actually costs, historically always higher than CPI except when going in/coming out of resession.

My payrise is always the CPI rate which I see as a pay decrease.

When base rates move up, which they will at some point in the future that is going to impact a lot of people on base rate trackers and could really put a spike in the CPI!

in a nutshell as I understand it:
2 main rates of inflation
CPI: Government measure of what they'd like it to be, not based on anything
RPI: what stuff actually costs, historically always higher than CPI except when going in/coming out of resession.

My payrise is always the CPI rate which I see as a pay decrease.

CPI and RPI are mostly the same thing. They are calculated by looking at the cost of a 'basket of goods' and what that basket of goods costs on the highstreet (it also includes the cost of services, such as getting a car repaired, and so on). The difference is that CPI doesn't include mortgage costs. RPI does, so the effect of raising interest rates is a likely surge in RPI, but a drop in CPI, as demand for goods and services drops (because people are spending more on their mortgages). CPI is normally 1-2% lower than rpi, as housing cost is slowly taking a larger proportion of our take-home-pay - however during the 2008-2009 house price crash, this was significantly reversed (CPI went down to -0.9, or something, but RPI was down around -3)

/pedant

Pension calculations have also been switched from RPI to CPI which switches even more of the investment risk from the company to the individual.

5lab - Member
When base rates move up, which they will at some point in the future that is going to impact a lot of people on base rate trackers and could really put a spike in the CPI!
CPI doesn't include mortgage costs. RPI does, so the effect of raising interest rates is a likely surge in RPI, but a drop in CPI, as demand for goods and services drops (because people are spending more on their mortgages)

/pedant

Oops, I got it the wrong way around and you are right. Hopefully, the MPC would see the spike for what it is and treat it accordingly.

Who would want to be a central banker, eh?

Yup, inflation is caused by wages going up

🙄

^^^^

It can be John.

Demand pull inflation is caused by wages going up and increasing demand and allows sellers to put their prices up without losing market share.

The other one is supply push inflation where manufacturers experience rises in the prices of their inputs which they push on to consumers.

I quite enjoy economic theory but it is a pity that one of the building blocks is flawed.

Yup, inflation is caused by wages going up

Hence why the need to have unemployed people, you need to pool from which to take people, if you had everyone in work wages would rise.

We are told the bankers and CEOs have to be paid huge amounts and receive above inflation pay rises else they would go elsewhere.

And obviously these wage rises have to be paid for by increasing prices. hence inflation.

Goods go up and down in price
What goes down in price? - everything goes up as far as I can tell!

Clothing and shoes in particular haven't changed in price for what seems like forever. I'm sure a pair of nice trainers have been @£70 for 15 years or so.

Electronic goods fall in cost all the time and the cost of communications constantly falls (or at least becomes better value). Nobody gets hot under the collar about the cost of a long distance call anymore

20 odd years ago food shopping would account for approx 25% of your yearly spend, now its nearer to 10% and furniture, crockery, pots and pans are practically throw-away prices, not wedding gifts.

We are told the bankers and CEOs have to be paid huge amounts and receive above inflation pay rises else they would go elsewhere.

I say let them go.

Bankers don't make real money, they don't manufacture things, don't dig things out the earth, they don't solve the next big science/technology problem.

Yup thats right let them go. 🙂

Conquerer>
Pleased to see another educated opinion based on rigorous analysis and understanding of the role of bankers, banks and the economic situation we find ourselves in. 🙄
Why stop at bankers? Why not switch to full Stalinist communism?

5lab> RPIx doesn't include mortgage costs. but is currently the same as RPI which does.

CPI is 'supposed to be internationally comparable, but I guess people in europe don't buy their on houses

CPI has differences in coverage and methodology to RPI (cynics think it has the faster inflating prices removed to lower the apparent rate of inflation), I'm saying nothing 😉
basically: different items in the basket.

here is clarification:

STATISTICS.GOV.UK "http://www.statistics.gov.uk/downloads/theme_economy/cpi-rpi-information-note.pdf"

crotchrocket

I don't see the need for so many bankers. We need a more balanced economy not one merely concerned with financial services.

We are fairly shafted anyway.. its not like we have the natural resources of China/Oz.. We certainly don't make much any more of any note... Not sure we are a technological centre

Germany does better than us they actually export stuff

French own our energy supply which isn't great

actually, I wasn't disputing that, I said something about zero inflation if most people on here are to be believed, but I thought I'd better edit my original response - you never know when "the corporate eyes they are watching" 😉

From my own little microcosm, the cost of musical instruments, technology and studio time has barely changed in the last 25 years either. Example - a mid range drum kit, cost now about £450-650 depending on make & model; price in 1990 when I bought my previous kit - about £450. Example 2 - studio time: in 1988, one hour in a 24-track recording studio was about £24, while an hour in an 8-track studio was about £8 (yep, £1 per track per hour). Now, everything is digital so you're not restricted to a mere 24 tracks like you were in the days of magnetic tape - but the price has actually gone down to about £20 per hour, effectively unlimited number of tracks

We certainly don't make much any more of any note

according to who? Jeremy Clarkson when he's doing one of his 'things aren't how they used to be' laments?

We manufacture pretty much the same amount as we always have, we're the 7th largest manufacturing nation in the world - here in on our compact and bijou little island

@ Conqueror

What we need and what we have to make do with are two very different things:
You don't suddenly find more engineers if you sack bankers.

As an economy/population the UK only want to compete where we can make enough money to live a very high standard of living.
We can't compete with China/thailand/taiwan for manufacturing. We don't have mineral resources.

We do have a massive market, an international reputation for financial regulation, protection, integrity and a tax system which allows big money to flow through a centre where some of the best educated, well proven financial professionals in the world.

We have an education system which is considered one of the best in the world (well, the public schools and uni's anyway).

so the UK prolly can compete on a world stage for finance and high tech innovation.

If everyone in the UK supported the other things we do (innovate) we wouldn't be so reliant on bankers.
But how many people can genuinely be supported by innovation?

FWIW: the german economy is very different to the UK one, they have made an international reputation of getting the engineering right - compare BMW to Leyland

We are fairly shafted anyway.. . We certainly don't make much any more of any note... Not sure we are a technological centre

Oh dear, another one.

crotchrocket

[i]not after an arguement but[/i]

You don't suddenly find more engineers if you sack bankers

Agreed but are we helping the ones we've got enough?

We can't compete with China/thailand/taiwan for manufacturing. We don't have mineral resources..

Not necessary needed in vast quantities for hi-tech low volume manufacturing

We do have a massive market, an international reputation for financial regulation, protection, integrity and a tax system which allows big money to flow through a centre where some of the best educated, well proven financial professionals in the world.

Yet we find ourselves in this mess

so the UK prolly can compete on a world stage for finance and high tech innovation.

If everyone in the UK supported the other things we do (innovate) we wouldn't be so reliant on bankers.
But how many people can genuinely be supported by innovation?

California, can we compare to that?

FWIW: the german economy is very different to the UK one, they have made an international reputation of getting the engineering right - compare BMW to Leyland

Yup Germany has a balanced economy or at least more balanced than ours.

We do have Rolls Royce a internationally reputable company and arguably the best in its field? So why don't we have more like it?

@ Conqueror

not after an arguement but I'll try & create something cogent for you

You don't suddenly find more engineers if you sack bankers
Agreed but are we helping the ones we've got enough?

We can't compete with China/thailand/taiwan for manufacturing. We don't have mineral resources..
Not necessary needed in vast quantities for hi-tech low volume manufacturing

We do have a massive market, an international reputation for financial regulation, protection, integrity and a tax system which allows big money to flow through a centre where some of the best educated, well proven financial professionals in the world.
Yet we find ourselves in this mess

so the UK prolly can compete on a world stage for finance and high tech innovation.
If everyone in the UK supported the other things we do (innovate) we wouldn't be so reliant on bankers.
But how many people can genuinely be supported by innovation?

California, can we compare to that?

FWIW: the german economy is very different to the UK one, they have made an international reputation of getting the engineering right - compare BMW to Leyland
Yup Germany has a balanced economy or at least more balanced than ours.

We do have Rolls Royce a internationally reputable company and arguably the best in its field? So why don't we have more like it?

@ Conqueror

not after an argument either, but I'll try & create something cogent for you

but are we helping the ones we've got enough?

We can't compete with China/thailand/taiwan for manufacturing. We don't have mineral resources..
Not necessary needed in vast quantities for hi-tech low volume manufacturing

We do have a massive market, an international reputation for financial regulation, protection, integrity and a tax system which allows big money to flow through a centre where some of the best educated, well proven financial professionals in the world.
Yet we find ourselves in this mess

so the UK prolly can compete on a world stage for finance and high tech innovation.
If everyone in the UK supported the other things we do (innovate) we wouldn't be so reliant on bankers.
But how many people can genuinely be supported by innovation?

California, can we compare to that?

FWIW: the german economy is very different to the UK one, they have made an international reputation of getting the engineering right - compare BMW to Leyland
Yup Germany has a balanced economy or at least more balanced than ours.

Mini => BMW
Jordans => Rivita
& Cadbury went shit shaped IIRC
Jaguar
Range Rover
MG
Call Centers
the list goes on.
The problem is (I forget the name of this razor): "if it can be done cheaper, it will be"

Where stuff can be made cheaper for more profit it will be, but you can't make innovation cheaper (very easily). the indians are trying really hard tho - as i understand it a percentage of the UK software writing capability & support is already been exported and is now being done offshore.

So, question, what will inflation be in January, given the rise in VAT? Anyone fancy a spread bet?

That government chart is quite clearly made up - that's why inflation is so low. I mean according to that, "Equipment for sport and open-air recreation" is cheaper than in 2005, when everybody knows that an XTR mech costs about twice as much as it used to.

On manufacturing. We have a european leader in motorcycle manufacturer in Triumph.

Built from scratch over 20 years. Most production in the UK, a satellite factory in Thailand

There is absolutely no reason why we could not compete in other similar areas. Truimph motorcycles are similar cost to Japanese and sell well - infact triumphs market has held up better than many other manufacturers.

it can be done and it 1s scandalous that we don't make the same amount of stuff as we used to like trains and boats and planes. Short termism from the governments, owners and unions a lot of it. Mianly tho asset stripping did for manufacturing in separate waves over decaddes

We manufacture pretty much the same amount as we always have, we're the 7th largest manufacturing nation in the world - here in on our compact and bijou little island

IIRC, it was in 1985 that Britain ceased to be a manufacturing nation. Up until that point, and since the dawn of the industrial revolution, Britain had [i]always[/i] exported more manufactured goods than she imported. Since then however, Britain has imported more than exported.

So even if we manufacture pretty much the same amount as we were a hundred years ago, I can't really see how it's relevant. And we might be the 7th largest manufacturing nation in the world, but Brazil is the 12th, and Italy manufactures more than Britain. Furthermore, the largest manufacturing nation in the world produces more than 5 times more than Britain, and the second largest, more than 3 times more.

Yup, inflation is caused by wages going up

Simplifying a bit, but if we were all paid £1m all we would get is inflation, not a wealthy population.
The majority of people in Zimbabwe were paid billions of Z$ and very few were rich.
Unlikely to get that bad here, but then it did happen to the Germans 80 years ago...

if we were all paid £1m all we would get is inflation

No you wouldn't. Inflation refers only to price indexes, not wages.

Since EU enlargement in 2004, wages in the construction industry have remained more or less static, house prices have not.

However much the Tories/LibDems/New Labour might try to convince the public, the cause of all economic woes is not greedy workers.

Unsurprisingly, huge wage increases for top earners are [i]never[/i] deemed to contribute towards inflation. Despite the fact that presumably these increases have to be paid for through higher prices for goods and services.

I like reference to Zimbabwe btw ..... it's always a good one to scare people is it not. Of course the reference to Zimbabwe and Germany [i]"80 years ago"[/i] is completely irrelevant to the point which you are making. Because in both countries the hyperinflation they experienced was not in any way at all caused by wage increases. If wages went up it was only in an attempt to keep up with inflation - they were not the cause.

Of course if inflation was really as bad as some would suggest, then the opposite must surely be true, ie, deflation must be really rather good. And yet the complete opposite is true - deflation is a far greater evil than inflation.

The spectra of inflation is a very useful tool for self-servicing politicians to cynically exploit. Along with unemployment, it is used to discipline and frighten workers into not making any demands which might improve their standards of living. It is used as a justification for keeping wages low, but not of course, the wages of the privileged few.

Can I just check, ernie - would any of this be Facha's fault?

Can I just check, ernie - would any of this be Facha's fault?

Is what who's fault ?

btw I must have written a blinding post aracer .......... if that was the best that you could think of.

But well done for trying anyway.

deflation is a far greater evil than inflation

Never did understand this one. Some of the most successful and wealth-generating industries suffer deflation at a high rate - think IT or electronic consumer goods, for example. Deflation means my money goes further. Why is it so bad, or is it that it's not really bad, just that government's tax revenues go down?

Why is it so bad

Because people stop buying. Why buy today what will be cheaper tomorrow.

Why buy today what will be cheaper tomorrow

Because you want it or need it today. Deflation doesn't stop people buying PCs or flat-screen TVs, or mobile phones. You can't wait to buy food because it may be cheaper tomorrow.

No, people tend not to spend when there are deflationary pressures, preferring instead to save. This takes money out of circulation which further increases deflationary pressures. Which affects profits, confidence, causes businesses to go bust, and pushes unemployment up.

We saw a good example of how spending is affected by price anticipation with the mini spending spree caused people trying to beat the VAT rises.

If wages went up it was only in an attempt to keep up with inflation - they were not the cause.

So the wages wuld go up to keep up with inflation.

Not necessarily - wages very often don't keep up with inflation.

Zimbabwe's and the Weimar Republic's hyperinflation was not caused by wage increases. In fact iirc Germany had very high levels of unemployment between 1921 and 1923, not exactly the conditions for "excessive" wage demands.

No, people tend not to spend when there are deflationary pressures, preferring instead to save.

But the evidence is that people are prepared to spend on products even though they know the price will go down. Food is a good example - prices dropped for years and in that period the supermarkets boomed and we all ate well.

This takes money out of circulation which further increases deflationary pressures.

Saving only takes money out of circulation if you pile it up under the mattress. In theory the money I save in the bank is the money that the banks lend to businesses and individuals to keep the economy going.

We saw a good example of how spending is affected by price anticipation with the mini spending spree caused people trying to beat the VAT rises.

People are bound to move discretionary expenditure to avoid tax rises. Inflationary increases tend to be unpredictable and therefore have less effect.

Food is a good example - prices dropped for years and in that period the supermarkets boomed and we all ate well

THere is also the counter-intuative effect of rising prices pushing up demand on occasion, the thought process being the price is going up, I'd better get one now/stock up.

In theory the money I save in the bank is the money that the banks lend to businesses and individuals to keep the economy going.

I was referring to money no longer going through the tills chasing goods/services. Inflation = too much money chasing not enough goods. Deflation = not enough money chasing too many goods.

Putting your money into the banks so that they can lend to businesses and individuals "to keep the economy going" is pointless during periods of deflation. If businesses can't sell their goods and services because people aren't spending, then they need to contract - not expand. You don't need to borrow money to do that.

Plus why would banks lend money to individuals at a time when individuals are depositing money into saving accounts ? Deflation is a truly horrendous state of affairs which without intervention, can snowball out of control with highly destructive consequences. Hence the need sometimes to consider quantitative easing.

TandemJeremy - Member
There is absolutely no reason why we could not compete ... it 1s scandalous that we don't make the same amount of stuff as we used to ... [b]Short termism from ... unions[/b] a lot of it...

bloody hell, are you feeling ok Jeremy?

X

If the price of bikes is falling (yeah, like that's going to happend) I'll wait until next year.