In the economic world inflation is a serious subject. Most of us tend to glaze over at the mention of the word: it’s something we don’t fully understand, something that interests boring people like bankers and accountants — and who really cares about their interests? Well inflation is definitely something we should all care about — not so much the thing itself, but how governments can, and do, manipulate it to serve their purposes.
To economists inflation means the rate that prices increase. The National Statistics Office (NSO) tells us that on the latest figures available (July ’08) the rate of inflation in the UK was 4.4%. If this figure feels a trifle low, it’s because it is.
Inflation is measured by comparing the cost of a ‘shopping basket’ of goods and services over a period of time. The NSO uses over a hundred thousand items for their ‘shopping basket’ — which is one or two more than most of us are interested in. Now, not only are those items continually changed, so no two ‘shopping baskets’ are identical and can therefore never be accurately compared, but a random selection of those items are ‘weighted’ according to some arbitrary measure of their importance. In other words (although I don’t for one minute suggest it is done), it’s perfectly possible to start out with a desired result, say 4.3%, and fiddle with the contents and ‘weighting’ of your ‘shopping basket’ until you get it.
The very term ‘shopping basket’, as used by economists, is interesting. It is obviously chosen to create the illusion that it represents our routine monthly expenses; but how many people routinely purchase more than a hundred thousand different items a month — and then keep changing those items every month?
The government might explain the need for over a hundred thousand items in their ‘shopping basket’ by telling us that no two people have exactly the same spending priorities, and therefore a huge ‘shopping basket’ better reflects a huge range of spending habits. Poppycock.
Whilst it’s perfectly true that people spend their money on different things, there are some weekly expenses which are essential to most of us, and are broadly the same; things like food and water, housing, electricity and gas, transport, communications.
I did a brief comparison of some of these figures for our home, looking at the months of August in ’07 and ‘08 and this is what I found:
Gas increased 32%
Council Tax increased 11%
Water increased 46%
Phone increased 12%
Weekly shop increased 37%
Electricity DECREASED! 15%
Our circumstances between those two months were essentially unchanged. My list excludes the increase of petrol prices because I didn’t keep my petrol bills, and our mortgage payments are left out because we were lucky enough to pay a bit off the capital sum during the last year.
This amounts to an approximate net increase in our cost of living of 25%, quite a long way from the government’s figure of 4.4%.
Now it is not beyond the whit of economists to obtain a rough but meaningful measurement, as I have done, of the real increase in the cost of our essentials. So the fact that they can interpret a 25% increase as 4.4% must be intentional. Why do you suppose that might be?
If pay was increasing by 25% there would be no problem. But of course it isn’t (not for real workers anyway — bosses are getting it, and more). To help ordinary people deal with a real inflation increase of 25%, the government is set to raise the National Minimum Wage in October from £5.52/hr to £5.73/hr, a mouth-watering 3.8%.
It’s fairly clear to see that the government’s figure for the rate of inflation has nothing at all to do with the real increase in our cost of living. The figure is deliberately manufactured in order to crush benefit payments, pensions and workers’ pay rises.
To the barricades mon braves!