Inflation, of course, is impossible to measure as it varies for each one of us according to what we are earning and what we are buying. So it is easier to look at rising prices selectively as the Office for National Statistics (ONS) does when it calculates the Consumer Prices Index (CPI). The index is supposed to represent a typical selection of purchases for the average person un the UK. The advantage of this approach is that it allows for consistent analysis of the results from one month to the next.
The latest total figure for the increase in the CPI, at 4.5%, invites us all and especially politicians to wonder why inflation appears to be galloping out of control. Fortunately the ONS provides a briefing detailing every category of items in the index. We can see, for instance, that alcoholic beverages and tobacco “rose by a record 5.3 per cent between March and April 2011 compared with a rise of 2.1 per cent a year ago” and that transport costs “overall, rose by 2.8 per cent” despite the reduction in fuel duty. Apparently “the largest upward effect came from air transport where the timing of Easter contributed to fares rising by 29.0 per cent between March and April 2011″.
The prices that are rising less rapidly, though, are just as interesting if less alarming than the areas where the increases feel most painful. So furniture, household equipment etc prices fell by 0.8% in a month. It is all too easy to imagine that retailers are having to reduce prices to lure ever more reluctant consumers whose funds are being pinched by the excessive elsewhere and who can, after all, defer spending for some time.
The briefing does not quite take the straightforward view of these ups and downs, however. Furniture, household equipment etc appears as a category that is fuelling inflation. This is because the prices dropped less between March and April this year than they did in 2010 (-1.6%). Nevertheless this mathematical approach seems at least counter-intuitive. Admittedly some prices, particularly food, have annual patterns but for others comparing this month’s change with the same month last year is simply meaningless: a price rise is a price rise even if it is less than last year’s increase. So clothing and footwear went up 1.3% in the month and households are poorer as a result even if the rise is smaller than it was in 2010.
In the end most of this inflation can be explained as the outcome of rising worldwide commodity prices. The country could probably cope with this, even at an overall annual rate of 2.8%. The remaining 1.7%, however comes from increased taxation. It remains to be seen if this is the straw that breaks the camel’s back.
