Did the Grich steal inflation?
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Hi Folks,
Who stole inflation?
More than half a century after its introduction, RPI is the best-known benchmark of inflation and is used to uprate State pensions and National Savings & Investments index-linked certificates.
Two months ago, the Office for National Statistics (ONS) surprised critics who claimed it was about to replace RPI with the Consumer Prices Index (CPI) which consistently produces lower figures. For example, RPI has produced higher measurements of inflation than CPI in 15 of the 16 years since the latter index was introduced. While CPI currently shows annual inflation at 2.7pc, RPI is more than a fifth higher at 3.3pc.
Now it appears that RPI is to be downgraded after all. Ros Altmann, a director of the London School of Economics, is among experts who question the apparent about-turn. She said: “The UKSA has quietly downgraded the RPI – our traditional measure of inflation, on which many incomes and prices depend. A statement, hardly noticed by anyone, said it had decided the RPI would no longer be an official statistic. There was no widely disseminated press release or publicity.
“Following the furore surrounding its original consultation, which attracted responses that overwhelmingly rejected dumbing down the RPI in the ways proposed by the ONS, the Official Statistician said a further review would be conducted.
“The ONS response to the consultation suggested acceptance of the need to consider the relative merits of RPI and CPI more carefully, but it seems that UKSA has now just decided to do what many feared anyway, but covertly, rather than overtly.
“Will tomorrow’s inflation figures refer to RPI? It will be interesting to see if tomorrow’s inflation figures include an RPI estimate and whether there will be any comment on the change in status.”
An UKSA spokesman said: “In January, the National Statistician completed a work programme and public consultation to address the differences between the CPI and the RPI, and found that the formulation of the RPI fails to meet international standards.
The ‘international standards’ bit refers to falling in line with EU calculations on price increases. However, the truth is that price increases do not equal ‘inflation’ in the monetary sense. What is happening is that prices are increasing on the back of resource extraction cost increases, and to some extent profiteering and market speculation. Has the old Retail Price Index which used to monitor price increases across the board has been changed to hide the ‘rip-off’ factor and to dumb down and confuse people as to what is actually going on; that is an economic deflation?
For instance the chancellor’s refusal to do anything about rising ‘energy’ bills:
As each of the big six energy providers hiked bills this winter, more than half of households now want George Osborne to freeze gas and electricity bills, according to research by investment manager Nutmeg.
However, they will be left disappointed, as the chancellor’s powers don’t allow him to dabble with private company pricing.
Osborne sets out how he intends to manage the country’s finances during the Budget. He will detail how much tax he plans to collect, changes to welfare, Government spending and benefits, so it’s an important announcement and affects just about everyone.
And listening to this guy talk about ‘inflation’ reminds me of the ‘Blue Brothers’ country and western joke, Elwood: “What kind of music do you usually have here?” Claire: “Oh, we got both kinds. We got country *and* western.”
He talks about price rises, but at the same time says that inflation comes from having wage increases which we are not seeing; so why does he not say we are in a deflation instead? Because no one alive today has ever experienced full on deflation. They don’t know what it is, and so cannot name the beast:The squeeze on household budgets tightened further last month as official figures revealed hikes in energy bills and fuel costs sent inflation to its highest level since last May.
https://l.yimg.com/rx/builds/3.7.6.9082/assets/player.swfAgain, we have not been here before, this is new territory. Resources especially energy are becoming qualitatively more expensive, at the same time as we have a deflationary monetary environment that means that there is less money to pay for goods and services let alone their increased prices.
https://www.youtube.com/watch?v=5B9PBq615Ac
Its all starting to unwind in a rather interesting way… Looks like the Grinch stole inflation as well as Christmas.
https://www.youtube.com/watch?v=p1P_giB0TKg
..well it does have haircuts in it! :whistle:L,
Sid.
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