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Inflation falls to 2.8% in May

24

Comments

  • ILW
    ILW Posts: 18,333 Forumite
    kabayiri wrote: »
    We used to have a notional 2% target for inflation. I remember this being pretty important to Gordon Brown when he was chancellor.

    Have we a new revised target? Should people get used to 3% perhaps?

    Probably, they do seem intent on punishing the prudent.
  • HAMISH_MCTAVISH
    HAMISH_MCTAVISH Posts: 28,592 Forumite
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    paulmapp8306 wrote: »
    Yeh - that means my wage has only dropped by 2.8% this year - as for the 3rd year running there is no pay rise (public sector).

    It's not quite that simple.

    Your wage has less purchasing power for the percentage of it you spend on inflating goods.

    Which will be less than 100%.

    So, for example, if inflation is 3% and you spend 50% of your wage on inflating goods, then your effective wage cut in real terms is 1.5%.

    But even that isn't the whole story, as for example the income tax allowance changes which came in this year mean many low to mid earners are slightly better off.

    So actually, while it is true most people's wages are not keeping up with inflation at the moment, the effective pay cut isn't as big as most people think it is.
    “The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.”
    -- President John F. Kennedy”
  • HAMISH_MCTAVISH
    HAMISH_MCTAVISH Posts: 28,592 Forumite
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    Masomnia wrote: »
    This means inflation is on target, doesn't it?

    It means inflation is within the range where King doesn't have to write a letter to Osborne explaining why it is too high or too low.

    So while not quite on target, it's close enough that it's not considered to be a serious problem.
    “The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.”
    -- President John F. Kennedy”
  • HAMISH_MCTAVISH
    HAMISH_MCTAVISH Posts: 28,592 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    ILW wrote: »
    they do seem intent on punishing the prudent.

    Inflation at 2.8% cannot under any credible definition be considered as "punishing the prudent".
    “The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.”
    -- President John F. Kennedy”
  • purch
    purch Posts: 9,865 Forumite
    kabayiri wrote: »
    I remember this being pretty important to Gordon Brown when he was chancellor.

    There were lots of things that seemed pretty important to Gordon Brown at the time.
    'In nature, there are neither rewards nor punishments - there are Consequences.'
  • ILW
    ILW Posts: 18,333 Forumite
    HAMISH_MCTAVISH wrote: »
    Inflation at 2.8% cannot under any credible definition be considered as "punishing the prudent".

    Compared to how the over indebted are being treated, it is.
  • The_J
    The_J Posts: 1,250 Forumite
    Depends on your definition of prudent. If it's "a stupid cash saver" then yes, it does punish them, but only so far as they deserve it for being so stupid. We have a fiat currency, inflation is inevitable.

    Generali has already covered the relevant points. This doesn't just suggest that QE is likely, it suggests it is necessary.
    The J is a Financial Advisor-This site doesn't check anyone's status and as such any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Always seek professional advice.
  • StevieJ
    StevieJ Posts: 20,174 Forumite
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    Masomnia wrote: »
    This means inflation is on target, doesn't it?

    No letter this month :)
    'Just think for a moment what a prospect that is. A single market without barriers visible or invisible giving you direct and unhindered access to the purchasing power of over 300 million of the worlds wealthiest and most prosperous people' Margaret Thatcher
  • grizzly1911
    grizzly1911 Posts: 9,965 Forumite
    paulmapp8306 wrote: »
    Yeh - that means my wage has only dropped by 2.8% this year - as for the 3rd year running there is no pay rise (public sector).

    Depends where you are in the public sector too. In the many parts of the NHS for instance many have had an effect pay cut of an additional "contribution to pensions" effectively another 3% of income removed.
    "If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....

    "big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham
  • Generali
    Generali Posts: 36,411 Forumite
    10,000 Posts Combo Breaker
    Masomnia wrote: »
    This means inflation is on target, doesn't it?

    Strictly speaking it's above target as the target is 2%. There is then a range of 1-3% and if CPI remains within that range the Guv'nor of the BoE doesn't have to write a letter to the Chancellor of the Exchequer to explain himself.

    The 1-3% range is generally described as the target though.

    The target used to be RPIX = 2.5%. As RPIX is 3.5% the BoE would be writing a letter again this month.
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