Household Bills v Inflation

cepheus

The Times reports that there is a perception of a cost of living increase of the order of 9% although official inflation is only around half this.

"Based on figures compiled from the responses of more than 4,000 people, the survey – by uSwitch.com, the independent price comparison service - suggested that the average pay rise in Britain this year would be 3.4 per cent, compared with a 9 per cent rise in household bills"

http://business.timesonline.co.uk/tol/business/economics/budget_2008/article3517108.ece

Why the difference, is it just perception or are the official figures wrong?

john_s_2

There was a very good piece about this on R4 about an hour ago. You should be able to Listen Again to it via their website:

http://www.bbc.co.uk/radio4/news/worldtonight/

It was towards the end of the programme, about twenty minutes in.

The criticism of uSwitch's figures was that they cherry-picked some headline figures that are going up and ignored other items that are going down.

I doubt that anyone could convince the public at large that the Official Rate isn't politically influenced - even after the Office for National Statistics is made independent in April (does anyone believe the BoE is truly independent?)

It doesn't help that the Govt uses two rates - the Retail Price Index (RPI) and Consumers Price Index (CPI). The reasons outlined in the radio article are that RPI has been used for longer and is a tried and trusted rate by employees and employers alike for settling pay claims, while the CPI is a harmonised rate across Europe (EEC). I believe (but don't quote me) that the reason CPI doesn't include housing costs is because, as yet, there is no agreement across Europe for how to measure these. I can't remember where I read that so, as I say, don't quote me.

Interestingly there was a Union bloke who was defending using the RPI for pay claims as it was "more realistic" than CPI. I wonder if he'll be singing the same tune if CPI goes above RPI? Which it may well do if house prices (hence, housing costs) go down? Or even stay static? Of course, housing costs also depend on interest rates, and interest rates are largely determined by CPI (BoE target is to keep CPI inflation at around 2%). So for RPI to go below CPI it would most likely only happen if RPI fell below 2% (from its current 4.1%). It's a thought though!

Also see:

http://www.statistics.gov.uk/CCI/nugget.asp?ID=19

which is the Office for National Statistics page for inflation, from where there's links to various articles about it.