The issue of the cost of living is making the headlines in various ways at the moment but one example of it came from an unexpected source. Here is Jack Monroe from just under a fortnight ago.
Woke up this morning to the radio talking about the cost of living rising a further 5%. It infuriates me the index that they use for this calculation, which grossly underestimates the real cost of inflation as it happens to people with the least. Allow me to briefly explain.
As you can imagine as someone who had argued for many years that inflation has been under measured for many years it attracted my attention. It was followed by some further detail.
This time last year, the cheapest pasta in my local supermarket (one of the Big Four), was 29p for 500g. Today it’s 70p. That’s a 141% price increase as it hits the poorest and most vulnerable households.
And more.
This time last year, the cheapest rice at the same supermarket was 45p for a kilogram bag. Today it’s £1 for 500g. That’s a 344% price increase as it hits the poorest and most vulnerable households.
Baked beans: were 22p, now 32p. A 45% price increase year on year.
Canned spaghetti. Was 13p, now 35p. A price increase of 169%.
Another issue that has troubled us appeared too.
Mushrooms were 59p for 400g. They’re now 57p for 250g. A price increase of 56%. (This practise, of making products smaller while keeping them the same price, is known in the retail industry as ‘shrinkflation’ and its insidious as hell because it’s harder to immediately spot.)
There were more examples on her Twitter thread but we have the gist of it and another of my points then got an airing.
The system by which we measure the impact of inflation is fundamentally flawed – it completely ignores the reality and the REAL price rises for people on minimum wages, zero hour contracts, food bank clients, and millions more.
This is a basic point which I agree with and leads to a technical one which is how well are what we might call value products – each supermarket has different names for its range- covered by our official price collectors?
She is not too keen on the standard of journalism either.
Every time there’s a news bulletin on the rising cost of living, I hope that today might be the day that that some real journalism happens, and someone stops to consider those of us outside of the bubble. Maybe today might finally be that day.
There are issues with this type of thing as for example it looks to be Asda which has reduced its range of value products. But there is a basic point which runs through it. Also the poor are more likely to be forced to use one shop because they cannot afford to travel to ones further afield. Another strength of it comes from recent circumstances because the increase in costs affecting the cost of food commodities from factors emInating from the energy and supply chain crises will raise the price of cheaper products by more than middle of the range and expensive ones which have more margin available.
The Retail Prices Index or RPI
I have made the case for the RPI for around a decade now and it gets support simply from the answer it gives.
The all items RPI annual rate is 7.5%, up from 7.1% last month.
This stands up much better than the measure targeted by the Bank of England.
The all items CPI annual rate is 5.4%, up from 5.1% in November.
So it does address more of the issues raised by Jack Monroe and as well as giving a higher reading it has other strengths from her point of view. For example it excludes the top 4% of incomes which means that it represents what we might call the ordinary population or “us plebs” if you prefer more accurately. It rarely gets raised in debates because it does not suit the official line but the way the CPI inflation series is based on spending and the fact that the better off spend more means it in fact represents somebody two-thirds of the way up the income distribution rather than half-way.
So it is not doing too badly for a measure that has received some much official abuse and you may now be thinking the official abuse ( such as the removal of its national statistics status) has an ulterior motive. In fact if we stay with Bank of England targets it is fitting Jack’s critique even better as below is the version that was used for that.
The annual rate for RPIX, the all items RPI excluding mortgage interest payments (MIPs), is 7.7%, up from 7.2% last month.
Indeed the same people managed to come up with a measure that gained official support after the review by Paul Johnson of the Institute for Fiscal Studies in 2015 pushed it.
The all items CPIH annual rate is 4.8%, up from 4.6% in November.
Yes they have pushed what is the worst measure of all and frankly Paul should be embarrassed by his review. Fortunately people have had the sense to pass it by and it remains widely ignored.
The cost of housing
Although not part of Jack’s thread this is a big issue in the inflation debate. It has also been badly misrepresented. Let me give you an example via the Financial Times.
Deposits rose both because house prices boomed — up more than 16 per cent since the start of the pandemic and counting, according to building society Nationwide ( Neal Hudson)
So house prices have soared and this is why there is so much official effort to keep them out of inflation measures. Yes some do gain via wealth effects but first time buyers and those trading up experience inflation.
Whereas instead they perform quite a contortion which involves claiming that those who win their own homes pay rent to themselves. Of course this is a fantasy but it does allow them to claim that inflation is a mere 4.8% via the CPIH inflation measure.
The OOH component annual rate is 2.2%, up from 2.1% last month.
They do it by claiming housing inflation is a mere 2.2%. I note that Neal Hudson rather destroys the rental numbers too.
At the same time, rents are rising rapidly again — up 8.3 per cent in 2021, according to Homelet — making it even more difficult to save a deposit.
So we have another area that needs investigation which is rents. We know the numbers are so unreliable they have to be smoothed over around 18 months but this is ridiculous. Those such as the FT’s economics editor Chris Giles who have argued for the use of CPIH have a lot of questions to answer here.
Comment
I think that by raising this issue Jack Monroe has done us all a service. It has been too easy for the deep state to keep producing inflation measures which give lower numbers.This makes real wages look higher than they are and also inflates the GDP numbers as for example the switch away from the RPI made UK GDP up to 0.5% higher per year. As the band Pilot put it.
It’s magic you know
Never believe it’s not so
It’s magic you know
Never believe it’s not so
We do need to produce measures which reflect reality more than fantasy. My point for many years is that the cost of housing is a major battleground for this. But there are others and Jack has questioned whether value or lower priced products are properly represented?
I have less faith in the official response which has signaled Jack’s impact via its speed as they have told us for years they do not have time to reform the RPI as I have requested. You will not be surprised to read that they think that there isn’t a problem. Yet they have not addressed the issue of what the inflation rate is for “value” products.
In essence it comes down to the famous quote from Mark Twain.
‘There are three kinds of lies: lies, damned lies, and statistics.’
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