The Guardian doesn\’t quite understand inflation

So, they\’ve taken the general rate of inflation and then compared it to the rate of inflation for specific goods.

Prices of goods rise and fall over time due to numerous factors, but we wondered if some of our regular purchases have increased in line with inflation over history, or whether we are paying far more than previous generations for our pleasures.

In 1981, the last time a royal wedding obsessed the nation, inflation was 11.9%, and it has never been as high since (the most recent monthly figure is 4.4%). Using the calculations of Phil Gooding, senior statistician at the Office for National Statistics, that inflation based on the retail price index has risen 209% between December 1981 and the end of last month, we looked at how much 10 items would cost today, if inflation was the only factor that changed prices.

It\’s quite fun in its way, manufactured goods are down, services up and goods that are taxed (beer say) are well up. There\’s amusement at the way that The Guardian itself is twice what the general inflation rate would predict (profiteering bastards!).

However, there\’s a small conceptual problem. There is in fact no \”general\” rate of inflation, something which just happens and against which we can compare such specific rates. That general rate is in fact the average rate of all of those specific rates. So what is actually being done is looking at how the various components of that average rate have changed, leading to the calculation of that average or general rate.

And yes, we\’d expect manufactures to have a lower inflation rate than services (Baumol\’s Cost Disease yet again) and of ourse, given that tax grabbing bastards that rule us, those things were there are discretionary taxes.

Beer\’s 150% or so of that average rate: put\’s that \”alcohol has become more affordable\” into context, doesn\’t it?

6 comments on “The Guardian doesn\’t quite understand inflation

  1. “the most recent monthly figure is 4.4%”: nope. They mean that that’s the most recently reported annual figure. The tox-dadger can’t get even the simplest things right.

    P.S. if they are happy to use CPI inflation there, why are they against its being used for pensions and so on?

  2. I wonder if the range of price changes changes over time. You could measure it by the standard deviation of the ONS shopping basket? Anyone done this?

    Tim adds: The basket very much changes over time. For example, online dating costs have just been added (no, really) and buggy whips have been out for near a century.

  3. Tim:

    “and buggy whips have been out for near a century.”

    That’s being a little generous to the peeps who run these numbers.

    There’s – though IANAE – quite a lot of fiddling with the basket to keep the appearance that inflation is low. e.g. adding things whilst their price is crashing, such as broadband subscription services and notably baked beans when they were the subject of a major supermarket loss-leader price war, then removing them when they stop being so useful for that purpose.

  4. True, Tim, but it’s no worse than expressing any nominal change ‘in real terms’, implicitly using a single number. Which we do, because it’s economically illiterate not to.

    I don’t agree with the poster above, though. I know stats people who help compile these numbers and I’m sorry, they’re just not the sort to fiddle them (nerds, basically).

    If anything, there’s a systematic bias towards overestimation, because quality improvements are only partially accounted for. The 2011 TV not only costs UKP232 rather than over UKP1000, it is better quality and more stuff can be watched on it. We are therefore even more better off (grammar, grammar..) than inflation-adjusting suggests.

    The Guardian’s thicker than it used to be, too…

  5. ‘The Guardian’s thicker than it used to be, too…’

    Yes, the paper and its columnists both.

  6. Dearieme – I think saying ‘the latest monthly figure’ is OK, it means simply the data is released monthly. You’d say ‘month-on-month’ figure if you meant that.

    BlokeinFrance – Interesting point, would you have to weight it by the importance of each item in the CPI? I guess so..Another problem is probably that the no. of items has risen over the years.

    FlatEric – are you sure the ONS doesn’t adjust for the quality of TVs?

    Also Tim, is there not an aggregate measure of inflation. If you take PV = MT, and assume T and V constant, then what is that which is left?

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