King warns of too-low inflation

Really2

StevieJ wrote: »

Some facts

June 12th 1979 Budget Vat increased from 8% to 15%
May 1979 Inflation rate was 10.3%
May 1980 Inflation rate was 21.9%

For those interested the 1979 budget
http://www.margaretthatcher.org/archive/displaydocument.asp?docid=109497

But you answered your own question inflation was high.
It could of been the stregnth of the £ or any other inflation contributing factor.
But you have to realise VAT is not included in inflation figures.

Guy_Montag

Really2 wrote: »

Fair enough but at least acknowladge loweing VAT will not show as a deflationary figure.

I refer the member to the answer I gave some moments ago

purch

But you have to realise VAT is not included in inflation figures

But, as if by magic it results in Inflation going up or down.

In theory increasing the price paid by the consumer should have reduced demand, thus lowering Inflation as measured by the price of the underlying goods, but the opposite appeared to happen in 1980, whilst lowering the price paid by the consumer as they are doing now should increase demand, thus raising the price of the underlying goods.

StevieJ

Really2 wrote: »

But you answered your own question inflation was high.
It could of been the stregnth of the £ or any other inflation contributing factor.
But you have to realise VAT is not included in inflation figures.

This is US but I assume the same methodology
How are taxes treated in the CPI?

Certain taxes are included in the CPI, namely, taxes that are directly associated with the purchase of specific goods and services (such as sales and excise taxes). Government user fees are also included in the CPI. For example, toll charges and parking fees are included in the transportation category, and an entry fee to a national park would be included as part of the admissions index. In addition, property taxes should be reflected indirectly in the BLS method of measuring the cost of the flow of services provided by shelter, which we called owners' equivalent rent, to the extent that these taxes influence rental values. Taxes not directly associated with specific purchases, such as income and Social Security taxes, are excluded, as are the government services paid for through those taxes.

Really2

Guy_Montag wrote: »

I refer the member to the answer I gave some moments ago

I can still not see anyware if VAT is included in the CPI.

But it is quiet easy to do the adjustment. do you think the goverment would not adjust it to reflect the change if deflation is a real threat.;)

Really2

StevieJ wrote: »

This is US but I assume the same methodology
How are taxes treated in the CPI?

Certain taxes are included in the CPI, namely, taxes that are directly associated with the purchase of specific goods and services (such as sales and excise taxes). Government user fees are also included in the CPI. For example, toll charges and parking fees are included in the transportation category, and an entry fee to a national park would be included as part of the admissions index. In addition, property taxes should be reflected indirectly in the BLS method of measuring the cost of the flow of services provided by shelter, which we called owners' equivalent rent, to the extent that these taxes influence rental values. Taxes not directly associated with specific purchases, such as income and Social Security taxes, are excluded, as are the government services paid for through those taxes.

Thanks, but the CPI was introduced when vat was 17.5% they will adjust it as I fail to see they will include a tax cut when Defaltion is a problem.

But the CPI was not around in the 80s? (RPI excludes VAT)

Guy_Montag

Really2 wrote: »

I can still not see anyware if VAT is included in the CPI.

But it is quiet easy to do the adjustment. do you think the goverment would not adjust it to reflect the change if deflation is a real threat.;)

"Approximately 60pc of the RPI is subject to VAT at the main rate, a little higher share for the CPI... "

But StevieJ does it for me.

"It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt."
-- Mark Twain

StevieJ

Really2 wrote: »

they will adjust it as I fail to see they will include a tax cut when Defaltion is a problem.

But the CPI was not around in the 80s? (RPI excludes VAT)

Exactly, do not understand why he has done it! I am finding it difficult to find details on this.

Thanks, but the CPI was introduced when vat was 17.5%
Yes but the inflation measures tend to keep a similar basic methodology.

Really2

Guy_Montag wrote: »

But StevieJ does it for me.

"It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt."
-- Mark Twain

Guy the RPI excludes VAT I Belive and we still have no proof that CPI does yet.
If it does I think we will see a 13 month "seasonal Adjustment"

StevieJ

Really2 wrote: »

Guy the RPI excludes VAT I Belive and we still have no proof that CPI does yet.
If it does I think we will see a 13 month "seasonal Adjustment"

A little out of date, but,
http://hansard.millbanksystems.com/written_answers/1988/jun/07/vat-and-the-rpi

Hansard 1803–2005 → 1980s → 1988 → June 1988 → 7 June 1988 → Written Answers (Lords)
VAT AND THE RPI

Page retrieved: http://hansard.millbanksystems.com/written_answers/1988/jun/07/vat-and-the-rpi
HL Deb 07 June 1988 vol 497 cc1396-7WA 1396WA

Lord Bruce of Donington asked Her Majesty's Government:
How much the retail prices index as at 21st May 1988 would be reduced if VAT were changed from 15 per cent. to 8 per cent. and, on the assumption that this later rate remained unchanged for 12 successive months, what its effect would be on the annual rate of inflation.
1397WA

The Secretary of State for Trade and Industry (Lord Young of Graffham) It is estimated that the impact effect on the retail prices index (as at 21st May 1988) of a reduction in the rate of value-added tax from 15 per cent. to 8 per cent. would be a fall in the index of around 3.2 percentage points.
Assuming that the VAT rate remained unchanged, after 12 months the annual rate of inflation would return to its underlying level—for example, if the underlying rate were 4 per cent., a VAT rate reduction of this order would, if fully passed on in lower prices, reduce it to 0.8 per cent. for 12 months, after which it would return to 4 per cent.