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Comment: can't believe the inflation figure? It's a question of perspective
Anthony Hilton15 Apr 2008
A survey published the other day showed that the British have less faith in government statistics than the citizens of any other western nation. Ten years of spin from the Government, a decade in which ministers selected only the facts which suited their case, the way the Prime Minister himself during his long reign as Chancellor would shamelessly move the goal posts to be able to claim that government finances remained within his golden rules, have taken their toll and now return to haunt him. These days nobody believes any of the numbers.
Nowhere is this more true than with inflation. The figures today showed the Consumer Prices Index to be up by 2.5 per cent, which in the City was looked on as a good result. In the country though it is looked on as another work of fiction. It is just too much at odds with personal experience.
Individual households are struggling to pay for petrol which costs more than 100p per litre, electricity and gas bills are soaring, council tax rises are of eye-watering proportions, there are higher rates for mortgages and now most evident of all - rising food prices. None of this squares with what the figures seem to say.
But there is an explanation - and it is not that the figures have been faked. The main feature of an index, any form of index, is that it is an average and it is a feature of averages that they damp down and deaden the effects of individual movements. In the stock market it is commonplace for the index to rise by two per cent but for the shares measured by it to jump or indeed fall by 10 per cent or more.
It is also possible that some of the biggest movers are not in the index at all. Both these factors are at work here. The CPI takes little account of housing costs so they do not influence it.
The other things we notice, like transport and electricity, are in there but they are offset by the prices of electrical goods, the cost of clothing, the rates on package holidays and all the other 101 items of everyday expenditure.
It is human nature to notice the big jumps in bills we pay only occasionally, but not to notice the small easing of prices in things we pay very often.
There is also something else. Remember that inflation measures the change in prices compared with last year. That means if petrol soared in price 12 months ago, and stays at that high price for a year it then ceases to register as a change in inflation.
So one reason the rate seems low is that these massive increases in prices have in fact been with us for some time - it is just that we still have not got used to them yet.
