Savers you've never had it so good?

mean_momma

I might have missed something, but what about service based costs and deflation? Service charges for leasehold accomodation are not known for decreasing . Any sort of tradesman/cabdriver/hairdresser is not going to get cheaper. Likewise even having a coffee in a cafe. Presumably, even though the cost of food might go down, supermarket employees still have to be paid. ?? And as for local councils, will council tax decrease? I think not!

gozomark

service based secotor has higher inflation than overall inflation - thats a long term trend, partly due to lower productivity growth

council tax - I say it again - its a tax, so not included in CPI or RPI

Andy_L

gozomark wrote: »

council tax is a tax, and so is excluded from CPI and RPI......

Council tax is included in RPI, not CPI
http://www.statistics.gov.uk/articles/nojournal/cpi_basket_article_2008.pdf
pg 26 refers

gozomark

thanks Andy - my error

lukekelly_2

Androcles wrote: »

Sorry, Gozomark, but I think you are completely missing the point. What I was saying is not about some technical difference between nominal and real capital. It is about real people being concerned that just spending away their real capital based on esoteric concepts ultimately results in no real capital left. Even you must admit that if I have £100 saved and spend it, then real and nominal capital = £0 - bust - end of story.

No one doubts that if you spend 100% of your capital you have no capital left. Would you though agree that the following two situations are identical?

Situation 1: £100 savings, 0% inflation, 0% interest. Spend £5. Here you've eroded the buying power of your savings by 5%.
Situation 2: £100 savings, 5% inflation, 5% interest. Spend £5. Here you have eroded the buying power of your savings by 5%. (Well, 4.8% but we'll round up.)
Situation 3: £100 savings, 20% inflation, 19% interest. Spend £5. Here you have eroded the buying power of your savings by 5%.

That you spend "capital" in the first situation and "interest" in the other two makes no difference. It is not a meaningful distinction unless you control for inflation first. Spending capital at present is as sensible (or not) as spending interest at a time of higher inflation and higher interest. You make a distinction between "real capital" and presumably "fake capital" that doesn't take into account inflation and thus has no meaning at all. The absolute value of savings is irrelevant, it's the spending power that matters.

gozomark

Andy_L wrote: »

Council tax is included in RPI, not CPI
http://www.statistics.gov.uk/articles/nojournal/cpi_basket_article_2008.pdf
pg 26 refers

I really should have remembered that as its one of the reasons RPI has been more than CPI for the last few years (up until recent months)

Primrose

It's one thing to ask savers who are still in a job and earning to spend their capital because they have the facility to replace it. For those who are retired and no longer have an earning capicity it's a completely different thing because with increasing longevity, the majority of us could need that capital in later life to fund residential care. If some futurologist were able to give us individual mortality predictions we would know how many years we've got to make our capital last. Until then, I suspect that for many older people who have lived through recessions and spendthift Labour governments before, it will not be possible to cast aside the prudent habits of a lifetime.

skyepark

how do i calculate my inflation? i have savings at good interest rates in fact at july's rates but not enough for a mortgage and i don't need a car. my money is just sitting there perhpas i could pay some of my mums mortgage off once she can get a better rate?

Reaper

Primrose wrote: »

For those who are retired and no longer have an earning capicity it's a completely different thing because with increasing longevity, the majority of us could need that capital in later life to fund residential care.

The crucial point you are still missing is inflation. It is no good keeping a fixed sum of capital to fund future residential care if inflation puts the price out of your reach. Nor is it worth leaving the capital intact if deflation makes it "cheaper" than you expected.

I've tried to explain the concept as clearly as possible (as has Martin) and I can't think of any further ways to get it across, so I'm going to duck out and leave Gozomark, lukekelly and others to see if they can do a better job.

Reaper

skyepark wrote: »

how do i calculate my inflation?

Follow the link in Martin's original post.