Tuesday, 18 February 2014

BEHIND THE HEADLINES

The latest inflation figures show a headline number below 2%, but it all depends what you buy...

 Source: Office for National Statistics
The Office for National Statistics do a professional job. When they want to measure inflation they naturally look at what people normally buy. They add greater weighting to the things that people buy more of, so a hike in the price of baked beans should show up more strongly that a similar rise in the price of Beluga caviar.

What people buy most of, however, are not necessarily the things that matter most. The biggest weighting goes to transport, which is worrying in itself, because it means that the largest slice of a household's spending does not provide a life-enhancing good, but merely defrays the cost of getting to work to earn money in the first place. The transport component of CPI has increased only 0.5% in the past 12 months, thanks to reductions in the prices of second-hand cars, petrol and diesel. These last rose to stratospheric levels a year or so ago and have now settled back slightly, which is just as well because vehicle repairs and spare parts have both risen faster than the average headline rate.

The slight increase in the cost of motoring will be little comfort to rail commuters who have seen an average 2.8% rise in fares across the network in January. They could, however, consider looking for an alternative route by sea or inland waterway, where fares have, according to ONS, fallen by 1.8% year on year. Journeys by water tend to be slow, so it's just as well that the price of recreation and culture has risen less than most. This, the second largest component of the index, includes those hand-held electronic games that would be just the thing to while away the hours on a leisurely, water-borne commute.

The third largest weighting goes to housing, including energy and water, which collectively have increased by 3.6% year on year, or getting on for twice the headline average. Not everybody has to travel, and electronic gadgets are optional, too, but everybody does need somewhere to live. If gas (up 6.7%) is too expensive perhaps they could burn books (up only 0.4%) or even board games, the price of which has dropped 0.8% in the year.

Restaurants and hotels (up 2.2%) come next in the weightings, ahead, surprisingly, of food eaten in the home. This, at 2%, has only risen a whisker above average. Best, however, to stick to bread and cereals (1%) and vegetables (1.4%), steering clear of meat and fish (2.6 and 3.2% respectively), as well as dairy products and fruit (2.3 and 2.4%).

In summary - people with the least to spend, who just want to eat and keep a roof over their heads, are still facing prices rising at nearer 3% than the headline 1.9%. Average figures work for average people, but this is something that almost nobody is.

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