The Bank of England might claim that inflation is running at just over two percent, but prices are increasing far faster down at the supermarket. For the last four months, UK food inflation has come in at 6 percent.Here is an interesting question - how important is food prices in the CPI measure? What would you think? Before you answer, think about what proportion of income you spend on food.
According to the Office of National Statistics, food is given a 9 percent weight. This implies that the average household spends just 9 pennies in every pound on food.
Oh, so the CPI isn't accurate? Well, there's a surprise. What's that you say, it's just a political tool to disguise real cost of living rises due to economic mismanagement and debasement of the currency? That it's deliberately understated so the government can underpay on inflation-linked debt and entitlements.
ReplyDeleteHmmm, it's almost like we should look at increases in the money supply rather than fraudulent measures such as CPI.
Nick
Actually, inflation when you exclude imported consumer electronics and other trivia is rather higher.
ReplyDeletehttp://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=560392&in_page_id=1770&ct=5
Asteve,
ReplyDeleteYou are way ahead of me on this one. I had intended to do a series of short posts pointing out the underlying anomolies of the CPI and RPI. I was keen to point out the absence of key items such as housing and how the focus on this limited measure distorts perceptions of inflation.
I was also going to point out the extraordinary difference between monetary growth and CPI inflation.
Excellent comment with some very perceptive observations; I enjoyed reading it.
Alice
"I was also going to point out the extraordinary difference between monetary growth and CPI inflation."
ReplyDeleteI look forward to this, but please take due care in what you use as the measure of money. It's just as difficult as CPI calcs. Personally I'd suggest M Prime.
Nick
Nick,
ReplyDeleteI think household holdings of M4 is probably the best measure of monetary growth.
Alice
Alice,
ReplyDeleteI look forward to seeing the analysis. I'd appreciate if you specify exactly what makes up your M4 numbers and why it is appropriate (i.e. no double counting, silly estimations, political tinkering, such as with CPI).
Nick