OverInflated

Listed below is the UKs measure of inflation (CPI - Consumer Price Index) from 2001-present

Year Month CPI %
2001 Jan 0.9
2001 Feb 0.8
2001 Mar 0.9
2001 Apr 1.2
2001 May 1.7
2001 Jun 1.7
2001 Jul 1.4
2001 Aug 1.8
2001 Sep 1.3
2001 Oct 1.2
2001 Nov 0.8
2001 Dec 1.1

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20-Mar-2007

Inflation could be set for an even more abrupt fall this year than originally expected, after the Office for National Statistics announced it has dramatically increased the weighting of gas and electricity prices in the Consumer Price Index.

The ONS said it was modifying Britain’s inflation measures to reflect a significant increase in the amount households spend on their utilities. The move comes after big increases in household bills pushed up the CPI to a record high of 3pc. As a result, the ONS said the weighting of gas bills would be 28.6pc higher this year than last. According to the updated basket of goods, the average family now spends 1.8pc of their annual income on these items, compared with 1.4pc last year. The increase for electricity bills is of a similar proportion.

Economists warned that the change made it even more likely that inflation would fall dramatically in the coming months.
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Thoughts on inflation
With oil, gas, electricity, council tax, houses and even food all going up in price, we are told that inflation is less than 3% per year. How can this be? Well the ONS use electronic goods such as DVD player, mp3s, computers, video games, mobile phone ring tones and TVs to add to the CPI inflation basket. These electronic goods always go down in price, so help put a reduction on the inflation figures. Housing is not part of the CPI measure.
I’ve never heard of a model of TV or MP3 player ever going up in price, have you? Its not even something that is essential for living.

http://www.nationalstatistics.org.uk/pdfdir/bas0307.pdf

The above PDF mentions that video tapes have been removed from the basket. Of course, this should happen as more and more people buy recordable DVDs and video tapes become redundant. Recordable DVDs are an item that will be purchased time and time again, however Flat screen TVs, Sat Navs etc, you are likely to purchase 1 or 2 every 5 years. Therefore their weightings should be considerably lower than items that are purchased on a regular basis and that would likely tally up more more spent over a period of time.

What is the governments reason for doing this?
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The group that decides the interest rate deliberately fuelled a consumer boom to boost house prices and personal debt so that “UK Plc” could avoid recession.

Former governor Edward George said the Monetary Policy Committee “did not have much of a choice” in the matter.

The MPC members were battling to use interest rates to prevent the UK being dragged into a worldwide economic slump, he explained.

And, he said, his legacy to the MPC - which decides the rate - was to “sort out” the problems that policy had caused.

Lord George - who headed the Bank for a decade until June 2003 - revealed that he knew the approach was not sustainable as he gave evidence to a committee of MPs.

The terrorist attacks on the US in September 2001 caused a stock market crash in the US, and a sharp fall in the global markets.

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Hi all,

We would like to invite you to join us and post your own views on UK inflation, how it is decided, dealt with and who is involved. Positive and negative views welcome.

Thanks
Ozz, Overinflated.com