Back Inflation

Back Inflation

The cost of real life - and why the inflation rate tells a different story

For those of us keep an eye careful about our finances, official inflation rate of 3% may seem a little less of the brand. It may be well above the government target of 2% but the majority of households in the United Kingdom, an increase of 3% in average costs would be affordable, though a little uncomfortable.

In fact, the United Kingdom has recently seen increases much more pronounced in the cost of living puts a lot of people have serious financial difficulties.

There is clear that the official inflation rate does not tell the whole story. For this reason, the Telegraph reported recently on the real cost of living (RCLI): an official inflation measure to map how each year the average British pay for basic living expenses of a life - which are inevitable without making changes in lifestyle important.

RCLI: how it differs from the official policy?

The real cost of living index for to give a realistic balance of basic living expenses, which the Telegraph says that "gives a more realistic picture of costs incurred by families of workers. "In particular, this includes housing (mortgage / rent) food services, transportation and taxes.

RCLI rate current inflation was measured at 9.5% - more than three times the official rate of inflation of 3%.

To date, the government has been based on the CPI (Index of Consumer Prices) and RPI (Retail Price Index) inflation measure. Both measure the variation in prices of a wide range of goods and services (known as the "basket of goods and services"), intended to represent the average purchase habits of the British population.

There is a problem with this approach: its own rising costs to take account of inflation, you'd have to buy all that " Government of the basket, in sufficient quantity. In reality, each individual is unique that you can buy some of these.

Given that a proportion reasonable expenditure of households occupied by food stores - the Telegraph has reported that the annual increase of 23% of the average - Could argue that the rate of inflation of 3% shows that the CPI gives a clear picture of how and where prices are rising.

Why enter contradictory official inflation figures with the reality on the ground?

It is a matter of great debate about exactly why the official inflation rate of 3% less than in the experiences of real life. One explanation is that the CPI does not include local taxes and fees Mortgage - two major expenses to any owner. But RPI has them, and even the CPI is 4.2%.

steps Government of inflation give different weights to items according to perceived as important to the budget of the average person. But the sharp increase number of cost inflation suggest RCLI essentials of life are not high enough is weighted in official statistics.

In Moreover, the government has included elements of more and more into the numbers that are known to be constant fall in price - especially consumer electronics. This, combined with the elements that experience little or no change in price, may go some way to neutralize the effect such a large increase the cost of living. And it could make inflation look too low.

Inflation figures are transparent?

Critics have suggested that elements of the "basket" can be chosen for political reasons, rather than an accurate representation of the cost of life. There are several reasons why this might be the case.

stable inflation

In many ways, a weak government inflation is considered a successful government. The last time the economy was really struggling with the Conservatives in the early 90s - And this was cited as an important factor in the loss of their power. 3% inflation is not a low inflation rate, but it is much better than 9.5%.

The risk of a recession

On the other hand, advertising official inflation rate of 9.5% could be devastating to the economy. In times of uncertainty, a large part of the recovery was due to the confidence of consumers and lenders.

High inflation, money is technically worth less - so that people are poorer and spend less. If the companies agree to wage increases based high inflation, prices causing inflation continues, and may continue to increase. If you reach a certain point too quickly, the application will soon fall - in the sense of the company to bear the high costs that are not met by the application, and may be forced to make cuts. If this becomes a higher unemployment average, businesses are affected by a further reduction in demand, which could lead to reductions - possibly triggering a recession.

The rising cost of living could be higher than inflation suggests - but the rate of inflation affects consumer confidence. In this regard, an inflation figure too low, in fact, could save the economy damage.

Is it true?

Third, the 9.5% inflation does not give a complete picture. Yes, some of the costs the most important in life are more at this rate - but the costs of many other goods and services are not. For example, the average consumer does not spend 9.5% more of their disposable income on things like CDs, DVDs, books, cinema, and pints of beer the same period a year last.

In this spirit, could it be that the pooling of a "basket of goods and services and measurement and the evolution of the average cost is not accurate enough? With rising costs of essential variables of a life so abruptly from that of other goods and services may be more accurate for release Separate figures for different areas of the economy - only then it will be clear to what extent the costs are more and more are on the rise, and how much of a problem it is.

But inflation is measured by the actual cost of living index is an important character. Costs are measured an enormous impact on how much they have left the disposable income. Regardless of whether the public admit the government may very well be an increase of 9.5% in the same seriously.

About the Author

Melanie Taylor writes for Think Money, who provide a wide range of financial &
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What households compared to their money when inflation is high? Keep it in the back or hold in your hand?

Based on my review midterm two weeks, still be seen on this issue. Because, as I learned, high inflation is a gain for the borrower and a loss of lenders.Therefore, we should not keep money in the bank to become a lender, however, also poses an opportunity cost of holding money in hand to PPL should save money in the bank, moreover, during the expansion, the int. in the bank rate is high enough to attract savings. ABT Considering this problem?

Lead best to keep it in the bank - receives no interest on cash and will be slow but steady fall in price as the value of property increases.

 

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