More pressure on IRs

Generali

vivatifosi wrote: »

Except that we'll have another VAT hike, so we won't get a true inflation figure until Jan 2012, unless of course VAT is increased again.

The thing that surprises me the most about inflation and VAT increases is that business investment has fallen back so far. As businesses in effect pay the price net of VAT surely that's indicative of an even greater fall than the numbers indicate.

AIUI, VAT isn't included when measuring investment.

vivatifosi

Generali wrote: »

AIUI, VAT isn't included when measuring investment.

Thanks Gen, I've been looking for comments as to whether it was or wasn't for months and couldn't find them anywhere. Rather embarassingly for someone who studied economics, I can't remember .

Generali

vivatifosi wrote: »

Thanks Gen, I've been looking for comments as to whether it was or wasn't for months and couldn't find them anywhere. Rather embarassingly for someone who studied economics, I can't remember .

It would be double counting if you did as VAT receipts are spent by the Government so would be included in the Government Spending and Investment components of GDP.

vivatifosi

Generali wrote: »

It would be double counting if you did as VAT receipts are spent by the Government so would be included in the Government Spending and Investment components of GDP.

Thanks Gen. It's funny, I studied economics a long time ago. There are bits of it I remember like yesterday (Keynes's formula for GDP for example) and other bits I don't even recall studying (M0, M4 etc) even though I have the text books to prove that I did.

Generali

vivatifosi wrote: »

Thanks Gen. It's funny, I studied economics a long time ago. There are bits of it I remember like yesterday (Keynes's formula for GDP for example) and other bits I don't even recall studying (M0, M4 etc) even though I have the text books to prove that I did.

It was strange for me teaching 1st year economics, 20 years after sitting through my 1st year of uni. I had the same thing. With a lot of it I remembered the concepts but not the application. Fractional reserve banking was an example of that.

GeneHunt_2

Generali wrote: »

It is an annual figure. To demonstrate we'll have an economy where you can only buy one thing.

Imagine an item selling for £100 for the whole of 2009. On 1st January 2010 it rises in price to £101 and remains at that price for the whole of 2010 and 2011.

What is inflation in this case? Well in Jan 2010 the price of our good is £101 and in Jan 2009 it was £100 so inflation is 1%. In Feb 2010 we compare the price to Feb 2009 and again it's 1%. That will be the same right through to Dec 2010 where we compare the price of £101 against Dec 2009 where it was £100 and again inflation is 1%.

Now we get to Jan 2011. The price is still £101 and in Jan 2010 the price was also £101 so the inflation rate is now 0%. You will often hear that process described as a price rise 'feeding through' the inflation figure.

In reality of course there are millions of prices in an economy. What the NSO does is take a kind of average of them all and compares the average this year to the average last year.

I think they compare this month to the last month and annualise it. See here.

http://www.statistics.gov.uk/cci/nugget.asp?id=19

angrypirate

Generali wrote: »

Another reasonable headline would be, "Inflation above target range by smallest reported increment'.

It's also worth remembering/realising that the rise in VAT from 15% to 17.5% would have increased inflation by roughly 1.2 percentage points being the entirety and a little bit more of the inflation overshoot (about half of purchases attract a VAT payment thus an increase in VAT of 2.5% would increase inflation by 2.5% x 1/2).

Correct me if im wrong, but i dont believe there is VAT on food (apart from restuarants) and isnt the VAT on gas and electricity set at like 5% and hasnt changed? And yet the core inflation figure has gone up by 0.1%!!!!