Do you believe that the CPI / RPI inflation rate applies to you?
I’ve been pondering this one for a while.
Everyone notices inflation. But very few people in the UK have access under the bonnet to check the workings of the published figure.
Particularly interesting on this topic is Shaun Richards (@notayesmansecon), who can do the proper technical economics that I can’t. This week on ZH[ http://www.zerohedge.com/news/2013-01-23/high-price-understated-inflation%5D there’s an interesting piece, illustrating how real inflation may have been understated for some years. The root cause of this is hedonic adjustments – that is, you may be paying £500 for a tv, but it’s so much better than the one you nearly bought last year for £500 that it’s like it’s cheaper. Except it’s not.
This chart is on the ZH article linked above.
My intuition is that the published figures do seem unlikely. But that’s not evidence – If you know better, please leave me some linkys.
My point here though is… what if it has been understated? What would it mean?
Most importantly, it means we’ve been getting below inflation pay increases [on avg] for that whole period. So you’ve had to make do with less. And so you’ve spent less. And so GDP is lower. Oh, and interest rates come into it – your savings are blowing in the wind.
So it’s a pretty huge thing. And yet, the data and the exact calculation is unknown to us all. My gas company send me a calculation of how they worked out the bill, so why is this massively important measure kept secret? It’s not commercially sensitive, no one is going to take the contract away.
What i’m saying is, let’s use the evidence. And share it. And discuss it. And then maybe we can improve it. But at least we’re in no doubt. At least we’re not relying on intuition, and bias.
Which is apparently a civilised way to do things.
[oblomovIII’s Postscript – In a few days since I wrote this, Max Keiser was on BBC’s Daily Politics, explaining real inflation – probably running at 6 or 7% –
Try going to your boss for a pay rise with that clip…]