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Keeping it real

Alex Hurrell

Trends in real wages under the new inflation measures

Last month’s ONS Consumer Price Inflation release for February 2013 included for the first time two new inflation index series, the RPIJ (1997-2012) and the CPIH (2005-2012). These new measures have been introduced in response to concerns with the current RPI and CPI measures respectively.

RPIJ is a modified version of the RPI, based on a slightly different mathematical calculation. It has been developed in response to a recent review of RPI by the National Statistician that concluded that RPI did not meet international standards because of the formula it uses (known as the ‘Carli’) to calculate prices for certain items in the RPI consumption basket. The new RPIJ measure is identical to the RPI in terms of the items it covers but addresses these concerns by using an alternative calculation method where necessary (known as the geometric ‘Jevons’ formula).

Giselle Cory

There has been a lot of discussion of inflation lately, as prices continue their upward march. The consumer trends data out today from ONS gives us an alternative way of looking at inflation. It shows that we are spending more and getting less on essentials like food, housing and transport. This is shown in the chart below, where solid lines show the amount we are buying and dashed lines the amount we are paying for it (effectively real terms versus cash terms consumption).

Food and fuel prices will be key to inflation in the year ahead

James Plunkett

This post originally appeared on Left Foot Forward

Today’s ONS inflation statistics presage what will be one of the few positive economic stories this year

Backed by strong discounting from retailers, RPI fell from 5.2 per cent in November to 4.8 per cent in December, while CPI fell from 4.8 per cent to 4.2 per cent, its largest one month drop since December 2008.

Stressed-out-by-inflationThat of course means inflation remains at more than twice the level of its Bank of England target. Nonetheless, future months are likely to see further falls, bringing welcome relief to real household disposable income.

The coalition's £11bn stealth cut

James Plunkett

This post originally appeared on the New Statesman blog

A technical quirk will allow the government to skim small amounts each year from lower income households.

What's the biggest cut George Osborne has made as Chancellor? Scroll through the Budget Red Book and the answer may surprise you. There's the removal of child benefit from higher rate taxpayers, clocking in at £2.5bn by the end of the parliament, and there's the time limiting of incapacity benefit which will save, eventually, around £1.2bn. But the biggest cut of all makes both moves look like minnows. It's the switch from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI) as the measure used to calculate tax credits, benefits and public service pensions.

The perils of welfare dependency – but not the kind you’re thinking of

Donald Hirsch

Centre for Research in Social Policy, Loughborough University

For the entire 30 years of my working life, reforms to our welfare system have marched to the drumbeat of calls to reduce “dependency”, by getting more people out to work. So hard have governments tried to achieve this aim that they have created a new kind of dependency, this time among working families receiving huge sums in tax credits. Even though this can sometimes mean giving someone as much state support in work as they would have got out of work (especially if working requires expensive, state-supported childcare costs), it has brought huge benefits to families. Not only can working feel good in itself (though not in all jobs), but the combination of state handouts with wages has brought many families out of poverty.

The growing need for a policy response to the ‘new inflation’

James Plunkett

This blog first appeared on Coffeehouse

There’s been much debate on these pages about the political implications of higher inflation. Ironically, this morning’s news of record food prices could relieve the pressure on the Bank of England Governor. His argument for caution when it comes to a rate rise is based on the claim that UK inflation is now being driven by events beyond the MPC’s control.

There is no single inflation rate

Matthew Whittaker

This blog first appeared on the Guardian.

In December we had the wrong type of snow. Now it's the wrong type of inflation, with the chancellor blaming bad borrowing figures on the type of price rises now hitting the UK economy. For consumers that all raises a basic question: what does it mean to say there's more than one type of inflation, and is this type good or a bad for my household bills?

Spiralling inflation continues to squeeze some more than others

Matthew Whittaker

This blog first appeared on The Spectator Blog, Coffeehouse.

The February inflation figures spell more bad news for living standards in the UK. With average weekly earnings growth standing at just 2.2 per cent, millions of workers continue to get poorer in real terms.

However, differences in the make-up of typical "shopping baskets" mean that the spending implications of inflation vary by income group. Since 2007, inflation has been driven primarily by increases in food and fuel prices. Given that such staples account for a larger share of weekly expenditure among lower income households than among higher income ones, the impact is felt more acutely in the lower half of the income distribution.

Time to think again about the way we measure inflation?

Matthew Whittaker

As was widely expected, annual inflation increased again last month. A combination of the VAT rise and higher oil prices helped push CPI from 3.7% in December to 4% in January – twice the government’s official target of 2 per cent. The wider RPI measure also increased, from 4.8% to 5.1%.

There is, however, a big question over how accurately these figures capture the extent of the price increases in different households.

As reported by Larry Elliot and Simon Briscoe, some statisticians are concerned that official measures of inflation understate real trends in the cost of living being faced by consumers.